Academy Sports & Outdoors, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. 67 Our management, with the participation of our CEO and our CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on such evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Annual Report, the design and operation of the Company's disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level. Management's Annual Report on Internal Control over Financial Reporting This Annual Report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. Changes in Internal Control over Financial Reporting No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 68 PART III Item 10. Directors, Executive Officers and Corporate Governance MANAGEMENT Executive Officers Below is a list of our executive officers, their respective ages as of January 30, 2021 and a brief account of the business experience of each of them. Name Age Position Ken C. Hicks 68 Chairman, President and Chief Executive Officer Michael P. Mullican 45 Executive Vice President and Chief Financial Officer Steven P. Lawrence 53 Executive Vice President and Chief Merchandising Officer Samuel J. Johnson 54 Executive Vice President, Retail Operations Sherry Harriman 51 Senior Vice President, Logistics and Supply Chain Jamey Traywick Rutherford 47 Senior Vice President, Omnichannel Manish Maini 47 Senior Vice President, Chief Information Officer William S. Ennis 51 Senior Vice President, Chief Human Resources Officer Rene G. Casares 45 Senior Vice President, General Counsel and Secretary Ken C. Hicks has served as the Chairman and our President and Chief Executive Officer since May 2018. Mr. Hicks has served as a member of the board of managers of New Academy Holding Company, LLC (our predecessor company) since May 2017 and as a member of the board of directors of Academy Sports and Outdoors, Inc. since June 2020. Mr. Hicks served on the compensation committee of the board of managers of New Academy Holding Company, LLC from May 2017 to May 2018. Mr. Hicks previously served as President and Chief Executive Officer at Foot Locker, Inc. from August 2009 to February 2010, and also served as Chairman, President and Chief Executive Officer at Foot Locker, Inc. from February 2010 to November 2014, and as Executive Chairman at Foot Locker, Inc. from December 2014 to May 2015. Prior to joining Foot Locker, Inc., Mr. Hicks held senior positions at J.C. Penney Company, Inc., Payless ShoeSource, Home Shopping Network, May Department Stores Company, and McKinsey & Company. Mr. Hicks has served on the board of directors of Avery Dennison Corporation since July 2007 and served on the board of directors of Whole Foods Market, Inc. from May 2017 to August 2017. Mr. Hicks graduated from the United States Military Academy located in West Point, NY, and served in the U.S. Army. He also earned a Masters of Business Administration with highest distinction from Harvard Business School. Michael P. Mullican has served as our Executive Vice President and Chief Financial Officer since January 2018. He previously served as our Executive Vice President and General Counsel from February 2017 to January 2018. Prior to joining Academy Sports + Outdoors, Mr. Mullican served as the Managing Director of Aureus Health Services, a specialty pharmacy owned by Meijer, Inc. Before being named Managing Director at Aureus, Mr. Mullican held several leadership roles at Meijer, including Vice President of Business Development, and Vice President and Assistant General Counsel. Additionally, Mr. Mullican served as Divisional Counsel and Assistant Secretary at Family Dollar Stores, Inc., and Associate General Counsel and Assistant Secretary at Horizon Lines, Inc. Mr. Mullican holds a Bachelor of Arts in Communication from North Carolina State University and a Juris Doctor degree from the University of Chicago Law School. Steven (Steve) P. Lawrence has served as our Executive Vice President and Chief Merchandising Officer since joining the Academy Sports + Outdoors team in February 2019. Prior to joining Academy Sports + Outdoors, Mr. Lawrence was President and Chief Executive Officer at francesca’s. From May 2012 to September 2016, he served as Chief Merchandising Officer at Stage Stores. Mr. Lawrence also spent nearly 12 years working in various merchandising leadership roles at J.C. Penney after 10 years at Foley’s. Mr. Lawrence also served on the board of directors of francesca’s from October 2016 to January 2019. Mr. Lawrence obtained his Bachelor of Business Administration in Finance from the University of Notre Dame. 69 Samuel (Sam) J. Johnson has served as our Executive Vice President, Retail Operations since joining the Academy Sports + Outdoors team in April 2017. Prior to joining Academy Sports + Outdoors, Mr. Johnson spent seven years with hhgregg, Inc., where he most recently served as Chief Retail Officer. While at hhgregg, Inc., he led functions including store operations, customer relations, commercial sales, real estate and visual merchandising. Prior to hhgregg, Inc., he spent more than 20 years in various leadership roles with Sears Holdings Corporation, including Vice President of Small Stores. Sherry L. Harriman has served as our Senior Vice President, Logistics and Supply Chain since joining the Academy Sports + Outdoors team in August 2018. Prior to joining Academy Sports + Outdoors, Mrs. Harriman spent 29 years at Walmart, Inc., where she served in various logistics and operations roles until she was promoted to Regional Vice President – Logistics in 2007. In 2010, she was promoted to Divisional Vice President – Supply Chain for Florida and Puerto Rico, where her team delivered innovative Supply Chain solutions that supported omnichannel strategies and disaster relief initiatives. Ms. Harriman holds a Bachelor of Business Administration from the University of Wisconsin-Eau Claire and a Master of Business Administration from John Brown University. Jamey Traywick Rutherford has served as our Senior Vice President, Omnichannel since joining the Academy Sports + Outdoors team in May 2018. Prior to joining Academy Sports + Outdoors, Ms. Traywick Rutherford spent over 17 years at AutoZone where she served in various e-commerce roles until she was promoted to Vice President, e-commerce in 2010. She transitioned to Vice President, Merchandising in 2017. She holds a Bachelor of Science in Environmental Science from the University of Denver, and a Master of Science in e-commerce from the University of Memphis. Manish Maini has served as our Senior Vice President, Chief Information Officer since joining the Academy Sports + Outdoors team in June 2017. Prior to joining Academy Sports + Outdoors, he served as the Chief Information Officer and Senior Vice President at The Children’s Place U.S. where he led a 120-member team, and was responsible for the development and implementation of the company-wide IT strategy. Mr. Maini also spent nine years at Ann, Inc., formerly Ann Taylor Stores Inc., where he served in various IT leadership roles, including Vice President of Enterprise Systems. Mr. Maini holds a Bachelor of Engineering, Electronics and Communication from STJ Institute of Technology in Karnatak, India. William (Bill) S. Ennis has served as our Senior Vice President, Chief Human Resources Officer since March 2016. Mr. Ennis joined the Academy Sports + Outdoors team as Vice President of Human Resources in April 2008 and served in that role until October 2010 when he was appointed as Senior Vice President, Human Resources. Prior to joining Academy Sports + Outdoors, Mr. Ennis spent over 19 years with Stage Stores, May Department Stores and Federated Department Stores in multiple capacities including human resources, stores, buying group, store operations and finance areas. He currently sits on advisory boards for the Texas A&M Center for Retailing Studies and Texas Retailers Education Foundation, and he is also the governing body chair for the Houston HR Leadership Summit. Mr. Ennis graduated with a Bachelor of Arts in Economics from the University of Texas. Rene G. Casares has served as our Senior Vice President, General Counsel and Secretary since March 2018. He joined the company in July 2013 as Senior Director, Associate General Counsel and served as Vice President, Associate General Counsel and Assistant Secretary from March 2016 to March 2018. Prior to joining Academy Sports + Outdoors, Mr. Casares served as an Associate Attorney at the global law firm, Vinson & Elkins LLP, from 2008 to 2013, where he advised major and middle-market companies with mergers and acquisitions, private equity, corporate governance and capital markets. He also served in a similar capacity as an Associate Attorney at the global law firm, Latham & Watkins LLP, from 2006 to 2008. Additionally, Mr. Casares has a background in finance and consulting after serving as an Associate at Growth Capital Partners. L.P., a Strategy Consultant at KPMG Consulting, Inc., and an Analyst at Merrill Lynch & Co. Mr. Casares holds a Bachelor of Business Administration in Finance from the University of Notre Dame and a Juris Doctor degree from Stanford Law School. The additional information required by this Item 10 will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference. 70 Item 11. Executive Compensation The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table gives information about the Company's common stock that may be issued upon the exercise of options, warrants and rights under all of the Company's equity compensation plans as of January 30, 2021. The table includes the 2011 Unit Incentive Plan, the 2020 Omnibus Incentive Plan and the 2020 Employee Stock Purchase Plan. Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Service-Based Stock Options 6,282,782 $ 13.53 (1) Performance-Based Stock Options 2,948,621 8.81 (1) Service-Based Restricted Stock Units 32,049 N/A (1) Liquidity Event-Based Restricted Stock Units 1,339,330 N/A (1) Performance-Based Restricted Stock Units 16,328 N/A (1) 2020 Employee Stock Purchase Plan — — (1) Total 10,619,110 $ 12.02 (2) (1) Of the plans listed above, only 2020 Omnibus Incentive Plan and the 2020 Employee Stock Purchase Plan allows for future grants of securities. The maximum number of shares that may be granted under the 2020 Omnibus Incentive Plan (inclusive of unissued shares that were carried over from the 2011 Unit Incentive Plan) is approximately 13,161,516 shares. Stock options and restricted stock units are counted on a one-for-one basis. Total shares available for future issuance under the 2020 Omnibus Incentive Plan is 4,940,723. The total shares available for issuance under the 2020 Employee Stock Purchase Plan is 1,000,000. (2) Weighted average exercise price of outstanding options only. Additional information required by this item is incorporated by reference to the 2020 Proxy Statement filed pursuant to Regulation 14A, beginning with the subsection of the Ownership of Securities section entitled Beneficial Ownership of Company Common Stock and up to but not including the subsection entitled Section 16(a) Beneficial Ownership Reporting Compliance. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this item will be included in our definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated herein by reference. 71 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements. The consolidated Financial Statements required to be filed hereunder are listed in the Index to Consolidated Financial Statements on page 73 of this Annual Report on Form 10-K. (2) Financial Statement Schedule. The consolidated financial statement schedule to be filed hereunder is included on page 114 of this Annual Report on Form 10-K. Other schedules have not been included because they are not applicable or because the information is included elsewhere in this report. (3) Exhibits. The Exhibits listed in the Index to Exhibits, which appears on pages 109 to 112 and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K. Certain Exhibits are incorporated by reference from documents previously filed by the Company with the SEC pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. 72 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm 74 Consolidated Balance Sheets as of January 30, 2021 and February 1, 2020 76 Consolidated Statements of Income for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019 77 Consolidated Statements of Comprehensive Income for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019 78 Consolidated Statements of Stockholders'/Partners' Equity for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019 79 Consolidated Statements of Cash Flows for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019 80 Notes to the Consolidated Financial Statements 81 73 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Academy Sports and Outdoors, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Academy Sports and Outdoors, Inc. and subsidiaries (the "Company") as of January 30, 2021 and February 1, 2020, the related consolidated statements of income, comprehensive income, stockholders'/partners’ equity, and cash flows, for each of the three years in the period ended January 30, 2021, and the related notes and schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2021 and February 1, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income Taxes — Refer to Note 12 to the financial statements Critical Audit Matter Description On October 1, 2020, the Company completed a reorganization in which New Academy Holding Company, LLC (NAHC) was contributed by its members to Academy Sports and Outdoors, Inc. (ASO), the newly public company, and became a wholly-owned subsidiary. The reorganization was completed in anticipation of the initial public offering (IPO) and resulted in the recording of a net deferred tax liability of $137.3 million. The liability consisted of the Company’s difference between the financial statement carrying value and the outside tax basis in its New Academy Holding Company, LLC (NAHC) membership units, immediately following the reorganization transactions completed as a result of the IPO, and measured at the enacted federal and state income tax rates. The impact of the deferred tax liability was recorded as a cumulative adjustment to additional paid-in capital for the year. Given the determination to measure and disclose the liability based on the outside tax basis and whether to record the amount to equity or income requires management to make significant judgments related to the application of the guidance, performing audit procedures to evaluate the reasonableness of management’s judgments required a high degree of auditor judgment and an increased extent of effort, including the need to consult with our experts in accounting for income taxes, as well as, the need to involve income tax specialists. 74 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s application of generally accepted accounting principles related to the financial statement classification of the deferred taxes resulting from the Company's reorganization included the following, among others: • Consulted with our experts in accounting for income taxes, and with the assistance of income tax specialists, we evaluated the reasonableness of the assumptions and judgments used by management to measure and disclose the deferred tax liability based on the outside tax basis and to record the impact of the deferred tax liability in equity. • With the assistance of our income tax specialists, we evaluated whether the sources of management’s tax basis in the NAHC units were of the appropriate character and sufficient to utilize under relevant tax law. /s/ DELOITTE & TOUCHE LLP Houston, Texas April 7, 2021 We have served as the Company's auditor since 1996. 75 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands) January 30, 2021 February 1, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 377,604 $ 149,385 Accounts receivable - less allowance for doubtful accounts of $ 1,172 and $ 3,275 , respectively 17,306 13,999 Merchandise inventories, net 990,034 1,099,749 Prepaid expenses and other current assets 28,313 24,548 Assets held for sale 1,763 1,763 Total current assets 1,415,020 1,289,444 PROPERTY AND EQUIPMENT, NET 378,260 441,407 RIGHT-OF-USE ASSETS 1,143,699 1,145,705 TRADE NAME 577,000 577,000 GOODWILL 861,920 861,920 OTHER NONCURRENT ASSETS 8,583 15,845 Total assets $ 4,384,482 $ 4,331,321 LIABILITIES AND STOCKHOLDERS' / PARTNERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 791,404 $ 428,823 Accrued expenses and other current liabilities 291,351 211,381 Current lease liabilities 80,338 76,329 Current maturities of long-term debt 4,000 34,116 Total current liabilities 1,167,093 750,649 LONG-TERM DEBT, net 781,489 1,428,542 LONG-TERM LEASE LIABILITIES 1,150,088 1,141,896 DEFERRED TAX LIABILITIES, NET 138,703 — OTHER LONG-TERM LIABILITIES 35,126 19,197 Total liabilities 3,272,499 3,340,284 COMMITMENTS AND CONTINGENCIES (NOTE 14) REDEEMABLE MEMBERSHIP UNITS — 2,818 STOCKHOLDERS' / PARTNERS' EQUITY (1) : Preferred stock, $ 0.01 par value, authorized 50,000,000 shares; none issued and outstanding — — Partners' equity, membership units authorized, issued and outstanding were 72,468,164 as of February 1, 2020 — 996,285 Common stock, $ 0.01 par value, authorized 300,000,000 shares; 91,114,475 issued and outstanding as of January 30, 2021 911 — Additional paid-in capital 127,228 — Retained earnings 987,168 — Accumulated other comprehensive loss ( 3,324 ) ( 8,066 ) Stockholders' / partners' equity 1,111,983 988,219 Total liabilities and stockholders' / partners' equity $ 4,384,482 $ 4,331,321 (1) See Retrospective Presentation of Ownership Exchange in Note 2. See Notes to Consolidated Financial Statements 76 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share data) Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 NET SALES $ 5,689,233 $ 4,829,897 $ 4,783,893 COST OF GOODS SOLD 3,955,188 3,398,743 3,415,941 GROSS MARGIN 1,734,045 1,431,154 1,367,952 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,313,647 1,251,733 1,239,002 OPERATING INCOME 420,398 179,421 128,950 INTEREST EXPENSE, NET 86,514 101,307 108,652 GAIN ON EARLY RETIREMENT OF DEBT, NET ( 3,582 ) ( 42,265 ) — OTHER (INCOME), NET ( 1,654 ) ( 2,481 ) ( 3,095 ) INCOME BEFORE INCOME TAXES 339,120 122,860 23,393 INCOME TAX EXPENSE 30,356 2,817 1,951 NET INCOME $ 308,764 $ 120,043 $ 21,442 EARNINGS PER COMMON SHARE: BASIC (1) $ 3.96 $ 1.66 $ 0.30 DILUTED (1) $ 3.79 $ 1.60 $ 0.29 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC (1) 77,994 72,477 72,432 DILUTED (1) 81,431 74,795 75,198 (1) See Retrospective Presentation of Ownership Exchange in Note 2. See Notes to Consolidated Financial Statements 77 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in thousands) Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 COMPREHENSIVE INCOME: Net income $ 308,764 $ 120,043 $ 21,442 Unrealized loss on interest rate swaps ( 6,653 ) ( 16,096 ) ( 2,625 ) Recognized interest (income) expense on interest rate swaps 11,045 ( 418 ) 1,106 Loss on swaps from debt refinancing 1,330 — — Tax expense ( 980 ) — — Total comprehensive income $ 313,506 $ 103,529 $ 19,923 See Notes to Consolidated Financial Statements 78 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' / PARTNERS’ EQUITY (Amounts in thousands) Redeemable Membership Units Stockholders' / Partner's Equity Total Membership Units / Common Stock Partners' Equity Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' / Partner's Equity Units (1) Amount Units (1) Amount Shares (1) Amount Amount Amount Amount Amount Units / Shares (1) Balances as of February 3, 2018 1,277 $ 16,431 71,111 $ 822,720 — $ — $ — $ — $ 9,967 $ 832,687 72,388 Net income — — — 21,442 — — — — — 21,442 — Equity compensation — — — 4,633 — — — — — 4,633 — Equity contributions from Managers 74 — — 1,250 — — — — — 1,250 74 Adjustment to Redeemable Membership Units for contributions from Managers and settlement of vested Restricted Units 11 1,454 — ( 1,454 ) — — — — — ( 1,454 ) 11 Unrealized loss on interest rate swaps — — — — — — — — ( 2,625 ) ( 2,625 ) — Recognized interest expense on interest rate swaps — — — — — — — — 1,106 1,106 — Balances as of February 2, 2019 1,362 $ 17,885 71,111 $ 848,591 — $ — $ — $ — $ 8,448 $ 857,039 72,473 Net income — — — 120,043 — — — — — 120,043 — Equity compensation — — — 7,881 — — — — — 7,881 — Equity contributions from Managers 6 — — 100 — — — — — 100 6 Adjustment to Redeemable Membership Units for contributions from Managers and settlement of vested Restricted Units 18 400 — ( 400 ) — — — — — ( 400 ) 18 Adjustment to Redeemable Membership Units for repurchase of units from Managers ( 29 ) ( 538 ) 29 538 — — — — — 538 — Repurchase of Redeemable Membership Units — — ( 29 ) ( 473 ) — — — — — ( 473 ) ( 29 ) Reclassification of membership units with lapsed put rights (Note 2) ( 1,195 ) ( 14,929 ) 1,195 14,930 — — — — — 14,930 — Cumulative-effect adjustment related to the adoption of the New Lease Standard — — — 5,075 — — — — — 5,075 — Unrealized loss on interest rate swaps — — — — — — — — ( 16,096 ) ( 16,096 ) — Recognized interest income on interest rate swaps — — — — — — — — ( 418 ) ( 418 ) — Balances as of February 1, 2020 162 $ 2,818 72,306 $ 996,285 — $ — $ — $ — $ ( 8,066 ) $ 988,219 72,468 Net income — — — 157,656 — — — 151,108 — 308,764 — Equity compensation — — — 3,690 — — 27,927 — — 31,617 — Adjustment to Redeemable Membership Units for settlement of vested Restricted Units 12 200 — ( 200 ) — — — — — ( 200 ) 12 Adjustment to Redeemable Membership Units for repurchase of units from Managers ( 2 ) ( 41 ) 2 41 — — — — — 41 — Repurchase of Redeemable Membership Units — — ( 2 ) ( 37 ) — — — — — ( 37 ) ( 2 ) Distributions to holders of Membership Units — — — ( 257,000 ) — — — — — ( 257,000 ) — Effect of the Reorganization Transactions ( 172 ) ( 2,977 ) ( 72,306 ) ( 900,435 ) 72,478 725 66,627 836,060 — 2,977 — Issuance of common stock in IPO and Over-Allotment, net of Offering Costs — — — — 17,432 174 206,796 — — 206,970 17,432 Cumulative tax effect resulting from Reorganization Transactions — — — — — — ( 141,909 ) — — ( 141,909 ) — Share-Based Award Payments — — — — — — ( 32,819 ) — — ( 32,819 ) — Share-Based Award Payments adjustment for forfeitures — — — — — — 596 — — 596 — Settlement of vested Restricted Stock Units — — — — 802 8 ( 8 ) — 802 Stock option exercises — — — — 402 4 18 — — 22 402 Unrealized loss on interest rate swaps (net of tax impact of $ 350 ) — — — — — — — — ( 6,303 ) ( 6,303 ) — Loss on swaps from debt refinancing (net of tax impact of $ 330 ) — — — — — — — — 1,000 1,000 — Recognized interest expense on interest rate swaps (net of tax impact of $ 1,000 ) — — — — — — — — 10,045 10,045 — Balances as of January 30, 2021 — $ — — $ — 91,114 $ 911 $ 127,228 $ 987,168 $ ( 3,324 ) $ 1,111,983 91,114 (1) See Retrospective Presentation of Ownership Exchange in Note 2. See Notes to Consolidated Financial Statements 79 ACADEMY SPORTS AND OUTDOORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 308,764 $ 120,043 $ 21,442 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 105,481 117,254 132,782 Non-cash lease expense 13,880 3,965 — Equity compensation 31,617 7,881 4,633 Amortization of deferred loan and other costs 5,516 3,717 4,163 Loss on swaps from debt refinancing 1,330 — — Deferred income taxes 701 297 ( 494 ) Non-cash gain on early retirement of debt, net ( 3,582 ) ( 42,265 ) — Gain on disposal of property and equipment — ( 23 ) ( 801 ) Casualty loss 194 569 46 Impairment of long-lived assets — — 1,408 Changes in assets and liabilities: Accounts receivable, net ( 2,981 ) 4,476 2,582 Merchandise inventories, net 109,520 34,407 89,284 Prepaid expenses and other current assets ( 3,765 ) ( 3,732 ) 2,187 Other noncurrent assets ( 2,496 ) 398 274 Accounts payable 361,518 ( 2,904 ) ( 70,029 ) Accrued expenses and other current liabilities 57,376 20,615 ( 2,703 ) Income taxes payable 14,124 — — Deferred rent/tenant improvement allowances — — 2,833 Other long-term liabilities 14,400 ( 1,029 ) 10,874 Net cash provided by operating activities 1,011,597 263,669 198,481 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 41,269 ) ( 62,818 ) ( 107,905 ) Proceeds from insurance claims — — 2,593 Proceeds from the sale of property and equipment — 23 10,429 Note receivable from member 8,125 ( 3,988 ) ( 4,144 ) Net cash used in investing activities ( 33,144 ) ( 66,783 ) ( 99,027 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from ABL Facility 500,000 502,500 526,812 Repayment of ABL Facility ( 500,000 ) ( 502,500 ) ( 561,812 ) Proceeds from Term Loan, net of discount 396,000 — — Repayment of Term Loan ( 1,461,072 ) ( 122,819 ) ( 18,250 ) Proceeds from Notes 400,000 — — Debt issuance fees ( 14,147 ) — ( 2,808 ) Share-Based Award Payments ( 20,970 ) — — Distribution ( 257,000 ) — — Equity contributions from Managers — 100 1,250 Proceeds from exercise of stock options 22 — — Proceeds from issuance of common stock, net of Offering Costs 206,970 — — Repurchase of Redeemable Membership Units ( 37 ) ( 473 ) — Net cash used in financing activities ( 750,234 ) ( 123,192 ) ( 54,808 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 228,219 73,694 44,646 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 149,385 75,691 31,045 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 377,604 $ 149,385 $ 75,691 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 87,163 $ 93,556 $ 108,208 Cash paid for income taxes $ 15,527 $ 2,588 $ 2,449 NON-CASH INVESTING AND FINANCING ACTIVITIES: Non-cash issuance of common stock $ 2,646 $ — $ — Change in capital expenditures in accounts payable and accrued liabilities $ 1,065 $ 309 $ 128 See Notes to Consolidated Financial Statements 80 ACADEMY SPORTS AND OUTDOORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations The Company All references to "we", "us," "our" or the "Company" in the financial statements refer to, (1) prior to October 1, 2020, New Academy Holding Company, LLC, a Delaware limited liability company ("NAHC") and the prior parent holding company for our operations, and its consolidated subsidiaries; and (2) on and after October 1, 2020, Academy Sports and Outdoors, Inc., a Delaware corporation ("ASO, Inc.") and the current parent holding company of our operations, and its consolidated subsidiaries. We conduct our operations primarily through our parent holding company's indirect subsidiary, Academy, Ltd., a Texas limited partnership doing business as "Academy Sports + Outdoors", or Academy, Ltd. Our fiscal year represents the 52 or 53 weeks ending on the Saturday closest to January 31. On August 3, 2011, an investment entity owned by investment funds and other entities affiliated with Kohlberg Kravis Roberts & Co. L.P. (collectively, "KKR"), acquired a majority interest in the Company. Upon completion of our initial public offering (the "IPO"), the related over-allotment exercise (the "IPO Over-Allotment Exercise"), and the secondary offering on behalf of KKR (the "Secondary Offering") detailed below, affiliates of KKR held an 54.5 % ownership interest in the Company. The Company is one of the leading full-line sporting goods and outdoor recreational products retailers in the United States in terms of net sales. As of January 30, 2021, we operated 259 "Academy Sports + Outdoors" retail locations in 16 states and three distribution centers located in Katy, Texas, Twiggs County, Georgia and Cookeville, Tennessee. Our distribution centers receive, store and ship merchandise to our stores and customers. We also sell merchandise to customers across most of the United States via our academy.com website. Fiscal Year The Company’s fiscal year represents the 52 or 53 weeks ending on the Saturday closest to January 31 each year. References herein to 2020, 2019 and 2018 relate to the 52-week fiscal years ended January 30, 2021, February 1, 2020, and February 2, 2019, respectively. Initial Public Offering and Reorganization Transactions On October 6, 2020, ASO, Inc. completed an initial public offering (the "IPO") in which we issued and sold 15,625,000 shares of common stock, $ 0.01 par value for cash consideration of $ 12.22 per share (representing an initial public offering price of $ 13.00 per share, net of underwriting discounts) to a syndicate of underwriters led by Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives, resulting in net proceeds of approximately $ 184.9 million after deducting underwriting discounts, which included approximately $ 2.7 million paid to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO, and $ 6.1 million in costs directly associated with the IPO ("Offering Costs"), such as legal and accounting fees. The shares sold in the offering were registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to our registration statement on Form S-1 (File No. 333-248683) (the "Registration Statement"), which was declared effective by the Securities and Exchange Commission (the "SEC") on October 1, 2020. In connection with our IPO, we completed a series of reorganization transactions (the "Reorganization Transactions") that resulted in: • NAHC, the previous parent holding company for the Company, being contributed to ASO, Inc. by its members and becoming a wholly-owned subsidiary of ASO, Inc., which thereupon became our parent holding company; and • one share of common stock of ASO, Inc. issued to then-existing members of NAHC for every 3.15 membership units of NAHC contributed to ASO, Inc. 81 IPO Over-Allotment Exercise On November 3, 2020, ASO, Inc. issued and sold an additional 1,807,495 shares of the Company's common stock, par value $ 0.01 per share, for cash consideration of $ 12.22 per share (representing an initial public offering price of $ 13.00 per share, net of underwriting discounts) to the IPO underwriters, resulting in approximately $ 22.1 million in proceeds net of underwriting discounts, which included $ 0.3 million paid to KCM for underwriting services, pursuant to the partial exercise by the underwriters of their option to purchase up to 2,343,750 additional shares to cover over-allotments in connection with the IPO (the "IPO Over-Allotment Exercise"). The option has expired with respect to the remaining shares. Secondary Offering On January 27, 2021, ASO, Inc. entered into an Underwriting Agreement (the “Underwriting Agreement”), by and among ASO, Inc., Allstar LLC, Allstar Co-Invest Blocker L.P., KKR 2006 Allstar Blocker L.P., MSI 2011 LLC, MG Family Limited Partnership and the former management selling stockholder named therein (collectively, the “Selling Stockholders”), and Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein (the “Underwriters”), relating to an underwritten offering (the “Secondary Offering”) of 12,000,000 shares of Common Stock, pursuant to the Company’s Registration Statement on Form S-1 (File No. 333-252390), filed on January 25, 2021 (the "Secondary Offering"). The Selling Stockholders granted the Underwriters the option to purchase, within 30 days from the date of the Underwriting Agreement, an additional 1,800,000 shares of Common Stock. On January 29, 2021, the Underwriters exercised in full their option to purchase the additional shares. The Secondary Offering was completed on February 1, 2021. Pursuant to the Underwriting Agreement, the Underwriters purchased the shares from the Selling Stockholders at a price of $ 20.69375 per share. The Company did no t receive any proceeds from the Secondary Offering. 2. Summary of Significant Accounting Policies Critical Accounting Policies Critical accounting policies are those that we believe are both most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions, using different assumptions or when actual results are known. Our critical accounting policies, which are described below, are as follows: • Merchandise Inventories, net; • Impairment of Long-Lived Assets; • Goodwill; and • Intangible Assets. Basis of Presentation and Principles of Consolidation These consolidated financial statements include the accounts of ASO, Inc. and, its subsidiaries, ASO Co-Invest Blocker Sub, L.P., ASO Blocker Sub, L.P., NAHC, Academy Managing Co., LLC, Associated Investors, LLC, Academy, Ltd., the Company's operating company, and Academy International Limited. ASO Co-Invest Blocker Sub, L.P., ASO Blocker Sub, L.P., NAHC, Academy Managing Co., LLC, and Associated Investors, LLC are intermediate holding companies. All intercompany balances and transactions have been eliminated in consolidation. ASO Co-Invest Blocker Sub, L.P. and ASO Blocker Sub, L.P. were dissolved on January 31, 2021. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Our management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results could differ significantly from those estimates. Our most significant estimates and assumptions that materially affect the financial statements involve difficult, subjective or complex judgments by management including the valuation of merchandise inventories, and performing goodwill, intangible and long-lived asset impairment analyses. Given the global economic 82 climate and additional unforeseen effects from the COVID-19 pandemic, these estimates are becoming more challenging, and actual results could differ materially from our estimates. Reclassifications Within the merchandise division sales table presented in Note 3, certain products and categories were recategorized amongst various categories and divisions, respectively, during 2020 to better align with our current merchandising strategy and view of the business. As a result, we have reclassified sales between divisions for 2019 and 2018 for comparability purposes. This reclassification is in presentation only and did not impact the overall net sales balances previously disclosed. Retrospective Presentation of Ownership Exchange Prior to the IPO, ASO, Inc. was a wholly-owned subsidiary of NAHC. On the IPO pricing date (October 1, 2020), the then-existing members of NAHC contributed all of their membership units of NAHC to ASO, Inc. and, in exchange, received one share of common stock of ASO, Inc. for every 3.15 membership units of NAHC contributed to ASO, Inc. (such 3.15 :1 contribution and exchange ratio, the "Contribution Ratio"). As a result of such contributions and exchanges, upon the IPO, NAHC became a wholly-owned subsidiary of ASO, Inc., which became our parent holding company. The par value and authorized shares of the common stock of ASO, Inc. of $ 0.01 and 300,000,000 , respectively, remain unchanged as a result of such contributions and exchanges. All membership units and redeemable membership units in the financial statements and notes have been retrospectively adjusted to give effect to the Contribution Ratio, as if such contributions and exchanges occurred as of all pre-IPO periods presented, including the periods presented on the Balance Sheets, Statements of Income, Statements of Stockholders’ / Partners’ Equity, Note 9. Equity and Share-Based Compensation, Note 10. Earnings per Common Share and Note 16. Selected Quarterly Financial Data (Unaudited). Redeemable Membership Units Prior to October 1, 2020, Allstar Managers LLC, a Delaware limited liability company ("Managers"), owned membership units in NAHC (each, a "NAHC Membership Unit"). Managers was dissolved and its assets were distributed to its members on December 23, 2020. Managers was 100% owned by certain current and former executives and directors of the Company and was formed to facilitate the purchase of indirect contingently redeemable ownership interests in NAHC. Prior to October 1, 2020, certain executives and directors could acquire contingently redeemable membership units in Managers (the "Redeemable Membership Units"), either by (1) purchasing the Redeemable Membership Units with cash consideration, which was subsequently contributed to NAHC by Managers in exchange for a number of NAHC Membership Units equal to the number of Redeemable Membership Units purchased, or (2) by receiving the Redeemable Membership Units in settlement of vested restricted units awarded to the executive or director under the Company's 2011 Unit Incentive Plan (see Note 9). Each outstanding Redeemable Membership Unit in Managers corresponded to an outstanding NAHC Membership Unit, on a unit-for-unit basis. On October 1, 2020, Managers received one share of ASO, Inc. common stock in exchange for every 3.15 membership units in NAHC that Managers contributed to ASO, Inc., and the Redeemable Membership Units in Managers that were held by its owners were reduced proportionately by the Contribution Ratio, so that the outstanding number of Redeemable Membership Units in Managers equaled the number of shares of ASO, Inc. common stock held by Managers on a 1:1 basis. NAHC was the sole managing member of Managers with a controlling voting interest, but no economic interest, in Managers. As the sole managing member of Managers, NAHC operated and controlled all business affairs of Managers. The terms and conditions of the agreements governing the Redeemable Membership Units included provisions by which the holder, or its heirs, had the right to require Managers or NAHC to purchase the holder's Redeemable Membership Units upon the holder’s termination of employment due to death or disability for cash at fair value. The carrying value of the Redeemable Membership Units was classified as temporary equity, initially at fair value, as redemption was an event that was not solely within our control. If redemption became probable, we were required to re-measure the Redeemable Membership Units to fair value. Periodically, these rights lapsed due to contractual expiration or a holder's termination of employment for reasons other than death or disability. Due to the lapse of this right for certain issuances, $ 14.9 million was reclassified from temporary equity to Partners' Equity during the 2019 third quarter. 83 Cash and Cash Equivalents We consider credit and debit card transactions, which typically settle within three business days, demand deposits with banks, and all other highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Financial Instruments Financial instruments are comprised of cash and cash equivalents, accounts receivable, accounts payable, certain accrued liabilities, derivatives and debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of those instruments. We enter into interest rate swaps to reduce the risk that our earnings and cash flows will be affected by changes in interest rates on our debt, and we do not hold any derivative financial instruments for trading or speculative purposes (see Note 4 and Note 5). The fair value of debt is influenced by fluctuations in market conditions for interest rates (see Note 6). Accounts Receivable Accounts receivable consists primarily of amounts due from vendors for vendor allowances and other accounts receivable. We provide an allowance for doubtful accounts based on both historical experience and a specific identification basis. Concentration of Risk Financial instruments which subject us to potential credit risk consist of cash and cash equivalents and derivative financial instruments. We have established guidelines to limit our exposure to credit risk on cash and cash equivalents by placing investments with high credit quality financial institutions. Deposits with these financial institutions may exceed the amount of insurance provided; however, these deposits typically are redeemable upon demand. We use high credit quality counterparties to transact our derivative transactions. Therefore, we believe that the financial risks associated with these financial instruments are minimal. We purchase merchandise inventories from approximately 1,200 vendors. In 2020, 2019 and 2018, purchases from our largest vendor represented approximately 12 %, 14 % and 13 % of our total inventory purchases, respectively. No other vendor in any of the aforementioned years exceeded 10% of our purchases. We typically do not enter into long-term inventory purchase commitments and there were none as of January 30, 2021 or February 1, 2020. A significant portion of our inventory purchases are manufactured outside of the United States, primarily in Asia. While we are not dependent on any single manufacturer outside of the United States, we could be adversely affected by political, health (including pandemic), safety, security, economic, tariff, climate or other disruptions affecting the business or operations of third-party manufacturers located outside of the United States. Merchandise Inventories, net Merchandise inventories are valued at the lower of weighted average cost or net realizable value using the last-in first-out ("LIFO") method. Merchandise inventories include the direct cost of merchandise and capitalized costs related to procurement, warehousing and distribution and are reflected net of shrinkage, vendor allowances and other valuation accounts. We regularly review inventories and record a valuation adjustment when necessary such as for inventory that has a carrying value in excess of the net realizable value or for slow moving or obsolete inventory. As of January 30, 2021 and February 1, 2020, merchandise inventories valued at LIFO, including necessary valuation adjustments, approximated the cost of such inventories using the weighted average inventory method. The application of the LIFO inventory method did not result in any LIFO charges or credits affecting cost of sales in 2020, 2019 or 2018. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation and amortization. Cost includes interest capitalized on borrowings used to finance the construction of stores and other significant capital projects while under construction. Depreciation and amortization is computed using the straight-line method over the asset’s useful life, which is generally determined by asset category as follows: 84 Leasehold improvements Lesser of asset useful life or lease term Software and computer equipment 2 – 5 years Other equipment 5 – 10 years Furniture and fixtures 7 – 10 years When assets are retired or sold, the cost and accumulated depreciation are removed from our accounts, and the resulting gain or loss is reflected in the consolidated statements of income. Repair and maintenance costs are charged to expense as incurred and significant improvements that substantially enhance the useful life or enhance the functionality of an asset are capitalized and amortized. In the normal course of business, we acquire land and construct new stores to be sold to and leased from third party landlords. New stores completed but not yet sold to and leased from third parties are classified as assets held for sale and are expected to be sold within one year. Our intent is to sell the stores and land for approximately the total land and construction costs incurred (which approximate the fair market value of the property, net of selling costs) and simultaneously enter into operating leases. Capitalized Computer Software Costs We capitalize certain costs incurred in connection with developing or obtaining computer software for internal use. Capitalized computer software costs are included in property and equipment on the consolidated balance sheets and amortized on a straight-line basis when placed into service over the estimated useful lives of the software. The amounts capitalized were $ 14.5 million, $ 12.9 million and $ 13.8 million in 2020, 2019 and 2018, respectively. Capitalized Interest We capitalized interest primarily related to construction of new stores, store renovations, distribution centers and IT projects in the amount of $ 0.6 million, $ 0.6 million and $ 1.3 million in 2020, 2019 and 2018, respectively. Interest expense, net on the consolidated statement of income is shown net of capitalized interest. Impairment of Long-Lived Assets We review the carrying value of long-lived assets, including property and equipment and finite-lived intangible assets, for indicators of impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of the assets to the estimated undiscounted future cash flows expected to be generated by the use of the assets. If such assets are considered to be impaired, the impairment loss recognized is the amount by which the carrying amount of the assets exceeds its estimated fair value, which is typically calculated using discounted expected future cash flows. As a result of our assessment, we did no t record an impairment of long-lived store assets in 2020 and 2019. In 2018, we impaired $ 1.4 million of long-lived store assets. These charges are included in selling, general and administrative expenses on the consolidated statements of income (see Note 6). Goodwill Goodwill represents the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is tested for impairment annually at the last day of our eleventh fiscal month, or more frequently if events or circumstances indicate that the carrying value of goodwill may not be recoverable. We test for goodwill at the reporting unit level, which is the operating segment level. We operate in one segment with one reporting unit. The annual goodwill impairment test provides for the option of first performing a qualitative assessment to evaluate the existence of events and circumstances that would lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such a conclusion is reached, we would then be required to perform a quantitative impairment assessment of goodwill. However, if the qualitative assessment leads to a determination that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then no further assessments are required. In 2020, we performed a qualitative assessment and determined a quantitative assessment was not necessary. 85 Our quantitative assessment for determining the fair value of our reporting unit includes using an estimated discounted cash flow model (income approach) and market value approach. The output of this assessment is an estimated fair value for our reporting unit that is compared to its carrying value to determine whether an impairment charge is necessary. The income approach uses a discounted cash flow analysis of our projected future income, and the market value approach is based on earnings multiples for a comparable set of public companies. These approaches use key input assumptions such as our projected future operating results, the discount rate, the weighting for each valuation approach and the comparable set of companies. A history of declining trends in our operating results such as comparable sales, gross margin, net income and cash flow from operations could impact these assumptions and serve as indicators of future impairment. There is significant judgment used in determining these assumptions and variability in the assumptions could cause us to reach a different conclusion on impairment. In 2019 and 2018, we performed a quantitative assessment for the determination of impairment. No impairment of goodwill existed for 2020, 2019 or 2018. Intangible Assets Intangible assets consist of the trade name of "Academy Sports + Outdoors" (the "Trade Name") and our favorable leases. The favorable leases are accounted for as finite-lived assets and are amortized over their estimated useful economic lives. With the adoption of the New Lease Standard on February 3, 2019, the balance of the favorable lease rights, net was netted into the right-of-use assets on the balance sheet (see Note 12). Amortization expense on favorable lease rights was $ 3.5 million in 2018. The Trade Name is expected to generate cash flows indefinitely and, therefore, is accounted for as an indefinite-lived asset not subject to amortization. The Trade Name is tested for impairment annually at the last day of our eleventh fiscal month, or whenever events or circumstances indicate that the carrying amount of the Trade Name may not be recoverable. Impairment is calculated as the excess of the Trade Name’s carrying value over its fair value. The fair value of the Trade Name is determined using the relief-from-royalty method, a variation of the income approach. This method assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to exploit the related benefits of these types of assets. Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. The results of the 2020, 2019 and 2018 annual impairment tests indicated that the fair value of the Trade Name was in excess of its carrying value and no impairments existed. Deferred Loan Costs Costs incurred to issue debt are deferred and recorded in the consolidated balance sheets. Those costs related to the issuance of term loan facilities and senior notes are recorded in long-term debt, net of current maturities and amortized as a component of interest expense over the terms of the related debt agreement using the effective interest method. The costs related to the issuance of our revolving credit facilities are recorded in other noncurrent assets on the consolidated balance sheets and amortized as a component of interest expense over the terms of the related debt agreements using the straight-line method. Derivative Instruments We are exposed to interest rate risk, primarily related to changes in interest rates on our term loan (see Note 4) and have historically used interest rate swap agreements, which we have designated as "cash flow" hedges, to hedge against market risks relating to possible adverse changes in interest rates. We assess, both at the inception of the hedge and on an ongoing basis, whether derivatives used as hedging instruments are highly effective in offsetting the changes in the fair value or cash flow of the hedged items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, we discontinue hedge accounting prospectively. Derivative financial instruments are recognized at fair value in the consolidated balance sheets (see Note 5 and Note 6). The changes in the fair value of derivative instruments designated as cash flow hedges are recorded in accumulated other comprehensive income ("AOCI"), net of tax effects, and are subsequently reclassified to earnings when the hedged transaction affects earnings. On January 19, 2021, we settled our three remaining outstanding interest rate swaps, which were scheduled to expire on various dates during 2021, for $ 4.1 million. As of January 30, 2021, we do not have any derivative financial instruments outstanding. 86 Self-Insurance We maintain deductibles or self-insurance retentions for workers' compensation, general liability and employee health benefits. Additionally, we use the services of an independent actuary to assist in determining losses associated with workers' compensation, general liability and employee health benefits. Liabilities associated with these losses are actuarially derived and estimated in part by considering historical claims experience, industry factors, severity factors, claim development, as well as other actuarial assumptions. If actual trends, including the severity or frequency of claims, medical cost inflation or fluctuations in premiums, differ from our estimates, it could have a material adverse impact on our results of operations. Changes in legal claims, claim development, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all adversely affect our ultimate expected losses. We believe the actuarial valuation provides the best estimate of the ultimate expected losses, and we have recorded the present value of the actuarially determined ultimate losses for the insurance related liabilities mentioned above. Leases Effective February 3, 2019, we adopted ASU 2016-02, "Leases (Topic 842)" and a series of related Accounting Standards Updates that followed (collectively referred to as the "New Lease Standard"). The New Lease Standard requires that lessees recognize assets and liabilities arising from operating leases on the balance sheet and disclose key information about leasing arrangements. We elected the practical expedient available to us under ASU 2018-11, "Leases: Targeted Improvements" , which allows us to apply the transition provision for the New Lease Standard at our adoption date instead of at the earliest comparative period presented in our financial statements. Adoption of the New Lease Standard resulted in approximately $ 1.2 billion of additional lease obligation and approximately $ 1.2 billion of right-of-use assets, which are reflected in the short-term and long-term liabilities and long-term assets sections of the balance sheet, respectively, as well as an cumulative-effect adjustment increase to the opening balance of retained earnings of approximately $ 5.1 million. All of our stores, corporate office facilities, and warehouse and distribution centers are leased. We may receive reimbursement from a landlord for some or all of the cost of a construction project, which may be structured as a tenant improvement allowance, construction allowance or landlord reimbursement. Cash received from a landlord for tenant improvement allowances in store lease transactions not considered a sale-leaseback transaction are a reduction to the right-of-use assets on the balance sheet, which are amortized ratably over the remaining terms of the corresponding leases. We account for each lease and non-lease components for our building leases as a single lease component which allows certain costs such as common area maintenance associated with these leases to be included as rent expense. We elected to exclude leases with contract terms of 12 months or less from the New Lease Standard accounting treatment, which results in straight-line recognition of the cost over the lease term with no associated balance sheet lease liability or right-of-use asset. Substantially all of our leases contain landlord incentives and escalation clauses. With the adoption of the New Lease Standard on February 3, 2019, the deferred rent balances were netted into the right-of-use assets on the balance sheet (see Note 12), which are amortized ratably over the remaining terms of the corresponding leases. In certain store construction cases, we may be deemed the owner of the property during construction, after which we then sell the property to a landlord and concurrently enter into a lease of the property to operate the store (“sale-leaseback”). We report the cash received for construction allowances as construction allowance receipts within the financing activities section of our consolidated statements of cash flows when such amounts are received prior to completion of a sale-leaseback transaction, and we report the cash received for construction allowances as proceeds from the sale of property and equipment within the investing activities section of our consolidated statements of cash flows when such amounts are received after the completion of a sale-leaseback transaction. If we are deemed the owner of the property during the construction period and the sale-leaseback criteria is met, the losses and gains from sale-leaseback transactions are recognized immediately. To date, the Company has not executed a sale-leaseback transaction under the New Lease Standard, which we adopted on February 3, 2019. 87 Net Sales We sell merchandise under implicit contracts whereby the transaction price is the listed sales price less any discounts or coupons applied. Our typical coupons offer a discount, which is applied immediately at the time of purchase. However, under certain circumstances we may issue a coupon, or similar incentive, which contains a material future right. In such instances, a portion of the revenue is deferred and subsequently recognized when earned. Revenue from merchandise sales is recognized, net of sales tax, when the Company’s performance obligation to the customer is met, which is when the Company transfers control of the merchandise to the customer. Store merchandise sales are recognized at the point of sale. For e-commerce sales, significant judgment is applied in determining when the transfer of control occurs, which we believe occurs upon customer receipt, and accordingly online merchandise sales are recognized upon delivery of the merchandise to the customer. The Company does not extend a material amount of credit. The sales return allowance, which is our provision for anticipated merchandise returns, is provided through a reduction of sales and cost of goods sold on a gross basis in the period that the related sales are recorded. The sales return allowance and related liability are included in merchandise inventories and in accrued expenses and other liabilities, respectively, in our consolidated balance sheets. Merchandise returns are estimated based on historical experience. Cost of Goods Sold Cost of goods sold includes the direct cost of merchandise and costs related to procurement, warehousing and distribution. These costs consist primarily of payroll and benefits, occupancy costs and freight. Shipping and Handling Costs Shipping and handling costs billed to customers are included in net sales. Shipping and handling costs that we incur associated with shipping products to customers are included in cost of goods sold. Vendor Allowances Vendor allowances include volume purchase rebates, promotional and advertising allowances, cooperative advertising funds and support for new store openings. These allowances are generally determined for each fiscal year with the majority of allowances based on quantitative contract terms. Allowances related to the purchase of merchandise inventories are recorded as a reduction of cost of goods sold as the related merchandise is sold. Allowances for cooperative advertising and promotion programs and other expenses are recorded in selling, general and administrative expenses as a reduction of the related costs as the related expense is incurred. Any allowance in excess of actual costs incurred that are included in selling, general and administrative expenses, or that do not require proof of performance, are recorded as a reduction of cost of sales. For volume purchase rebates, we record an estimate of vendor allowances earned based on the latest projected purchase volumes. Selling, General and Administrative Expenses Selling, general and administrative expenses include store and corporate administrative payroll and payroll benefits, store and corporate headquarters occupancy costs, advertising, credit card processing, information technology, pre-opening costs and other store and administrative expenses. Advertising Expenses Advertising costs are expensed as incurred. Advertising expenses, net of specific vendor allowances, were $ 122.8 million, $ 142.3 million and $ 139.1 million in 2020, 2019 and 2018, respectively. Pre-Opening Expenses Non-capital expenditures associated with opening new stores and distribution centers, which consist primarily of occupancy costs, marketing, payroll and recruiting costs, are expensed as incurred. There were no pre-opening expenses in 2020. Pre-opening expenses for our new stores were $ 3.2 million and $ 3.4 million in 2019 and 2018, respectively. 88 Equity Compensation We account for equity compensation in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") topic 718, Compensation-Stock Compensation , which requires the measurement and recognition of compensation expense for all equity awards made to employees based on estimated fair values on the grant date. Option equity award fair values are estimated on the date of grant using an option-pricing model and restricted unit fair values are based on the estimated unit price on the date of the grant. For awards with service-based vesting requirements only, the fair value of the award is recognized as expense over the requisite service period, and for awards with performance-based vesting requirements, the fair value of the award ultimately expected to meet the performance target is recognized as expense over the service period. We have elected to recognize forfeitures as they occur. Income Taxes The Company is subject to U.S. federal, state and foreign income taxes. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including recent results of operations, future reversals of existing taxable temporary differences, projected future taxable income and tax planning strategies. A valuation allowance is recorded to reduce the carrying amount of deferred tax assets if it is more-likely-than-not that all or a portion of the asset will not be realized. The Company recognizes tax benefits from uncertain tax positions only if it is more-likely-than-not the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized from such positions are measured based on the largest benefit having a greater than 50% likelihood of being ultimately sustained. Interest and penalties from income tax matters are recognized in income tax expense. Comprehensive Income Comprehensive income represents the net income for the period plus the results of certain changes to stockholders' equity (other comprehensive income) that are not reflected in the consolidated statements of income. Other comprehensive income consists of adjustments, net of tax, related to the Company’s interest rate swaps. Operating Segment Given the similar business activities, economic characteristics, products sold, customer base and methods of procurement, as well as the similar marketing and promotional activities of our stores and our academy.com website, we report our financial results as one reportable segment. Substantially all of the Company’s identifiable assets are located in the United States. 89 3. Net Sales The following table sets forth the approximate amount of sales by merchandise divisions for the periods presented (amounts in thousands): Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Merchandise division sales (1) Outdoors $ 1,968,514 $ 1,455,080 $ 1,473,403 Sports and recreation 1,258,913 975,711 1,017,670 Apparel 1,387,963 1,357,320 1,274,330 Footwear 1,044,502 1,021,603 997,692 Total merchandise sales (2) 5,659,892 4,809,714 4,763,095 Other sales (3) 29,341 20,183 20,798 Net sales $ 5,689,233 $ 4,829,897 $ 4,783,893 (1) Certain products and categories were recategorized amongst various categories and divisions, respectively, to better align with our current merchandising strategy and view of the business. As a result, we have reclassified sales between divisions for 2020, 2019 and 2018 for comparability purposes. This reclassification is in divisional presentation only and did not impact the overall net sales balances previously disclosed (see Note 2). (2) E-commerce sales consisted of 10.4 %, 5.1 % and 4.9 % of merchandise sales for 2020, 2019 and 2018, respectively. (3) Other sales consisted primarily of the sales return allowance, gift card breakage income, credit card bounties and royalties, shipping income, net hunting and fishing license income and other items. We sell gift cards in stores, online and in third-party retail locations. The gift cards we sell have no expiration dates. A liability for gift cards, which is recorded in accrued expenses and other liabilities on our balance sheets, is established at the time of sale and revenues are recognized as the gift cards are redeemed in stores or on our website. Based on historical gift card redemption patterns, we can reasonably estimate the amount of gift cards that have a remote likelihood of redemption. These identified amounts are recorded as net sales and recognized in proportion to historical redemption trends, which is referred to as "breakage". The following is a reconciliation of the gift card liability (amounts in thousands): Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Gift card liability, beginning balance $ 67,993 $ 66,153 $ 59,724 Issued 111,160 134,839 153,429 Redeemed ( 100,678 ) ( 128,638 ) ( 142,742 ) Recognized as breakage income ( 4,222 ) ( 4,361 ) ( 4,258 ) Gift card liability, ending balance $ 74,253 $ 67,993 $ 66,153 90 4. Long-Term Debt Our debt consisted of the following (amounts in thousands) as of: January 30, 2021 February 1, 2020 ABL Facility, due November 2025 $ — $ — Term Loan, due November 2027 400,000 1,468,993 Notes, due November 2027 400,000 — Total debt 800,000 1,468,993 Less current maturities ( 4,000 ) ( 34,116 ) Less unamortized discount on Term Loan ( 3,861 ) ( 2,591 ) Less deferred loan costs (1) ( 10,650 ) ( 3,744 ) Long-term debt, net $ 781,489 $ 1,428,542 (1) Deferred loan costs are related to the Term Loan and Notes. As of January 30, 2021 and February 1, 2020, the balance in deferred loan costs related to the ABL Facility (as defined below) was approximately $ 5.5 million and $ 3.4 million, respectively, and was included in other noncurrent assets on our consolidated balance sheets. Total amortization of deferred loan costs was $ 2.6 million, $ 2.6 million and $ 3.0 million in 2020, 2019 and 2018, respectively. Total expenses related to accretion of original issuance discount were $ 1.0 million, $ 1.1 million and $ 1.2 million in 2020, 2019 and 2018, respectively. On November 6, 2020, the Company issued the Notes (as defined below), entered into the 2020 Term Loan (as defined below), and entered into the 2020 ABL Facility (the "Refinancing Transactions"). The Company used the net proceeds from the Notes and the net proceeds from the 2020 Term Loan, together with cash on hand, to repay in full outstanding borrowings under its then-existing term loan, in the amount of $ 1,431.4 million. Term Loan We refer to the 2015 Term Loan and the 2020 Term Loan collectively as the "Term Loan". On July 2, 2015, Academy, Ltd. entered into a seven-year $ 1.8 billion senior secured term loan (the "2015 Term Loan") with Morgan Stanley Senior Funding, Inc., as the administrative and collateral agent, and other lenders, and a five-year $ 650 million secured asset-based revolving credit facility (the "2015 ABL Facility") with JPMorgan Chase Bank, N.A., as administrative agent, and other lenders. Academy, Ltd. received proceeds from the 2015 Term Loan of $ 1.8 billion, which was net of discount of $ 9.1 million. The 2015 Term Loan bore interest at our election, at either (1) LIBOR rate with a floor of 1.00 %, plus a margin of 4.00 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) Morgan Stanley Senior Funding, Inc.'s "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 3.00 %. Quarterly principal payments of approximately $ 4.6 million were required through June 30, 2022, with the balance due in full on the maturity date of July 2, 2022. On November 6, 2020, Academy, Ltd., as borrower, and the Guarantors, as guarantors, entered into the Second Amended and Restated Credit Agreement (the "2020 Term Loan Agreement"), with Credit Suisse AG, Cayman Island Branch ("Credit Suisse"), as the administrative agent and collateral agent (the "Term Loan Agent"), the several lenders from time to time parties thereto and the several other parties named therein, which established a new $ 400.0 million first lien term loan (the "2020 Term Loan"). The 2020 Term Loan will mature on November 6, 2027. The 2020 Term Loan bears interest, at Academy, Ltd.’s election, at either (1) LIBOR rate with a floor of 0.75 %, plus a margin of 5.00 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) Credit Suisse’s "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 4.00 %. Quarterly principal payments of approximately $ 1.0 million are required through September 30, 2027, with the balance due in full on the maturity date of November 6, 2027. As of January 30, 2021, the weighted average interest rate was 5.75 %, with interest payable monthly. The terms and conditions of the 2020 Term Loan also require that the outstanding balance under the 2020 Term Loan is prepaid under certain circumstances. In connection with the 2020 Term Loan, the Company capitalized related professional fees of $ 5.8 million as deferred loan costs. 91 The 2020 Term Loan Agreement contains customary events of default including, but not limited to, failure to pay principal or interest, breaches of representations and warranties, violations of affirmative or negative covenants, cross-defaults to other material indebtedness, a bankruptcy or similar proceeding, rendering of certain monetary judgments, invalidity of collateral documents and changes of control. As of January 30, 2021, no prepayment was due under the terms and conditions of the Term Loan. Prior to the Refinancing Transactions in 2020 and 2019, we repurchased principal on our Term Loan. The following table provides further detail regarding these repurchases (amounts in millions): Fiscal Year Ended January 30, 2021 February 1, 2020 Gross principal repurchased $ 23.9 $ 147.7 Reacquisition price of debt $ 16.0 $ 104.6 Net gain recognized $ 7.8 $ 42.3 In connection with the Refinancing Transactions, the Company recognized a non-cash loss on early retirement of debt of $ 4.2 million from the write-off of deferred loan costs and expense related to the original issuance discount associated with our 2015 Term Loan. Notes On November 6, 2020, Academy, Ltd. issued $ 400.0 million of 6.00 % senior secured notes which are due November 15, 2027 (the "Notes"), pursuant to an indenture, dated as of November 6, 2020 (the "Indenture"), by and among Academy, Ltd. the Guarantors (as defined below) and The Bank of New York Mellon Trust Company, N.A., as trustee and collateral agent (in such capacity, the "Notes Collateral Agent"). The Notes will pay interest semi-annually in arrears in cash on May 15 and November 15 of each year at a rate of 6.00 % per year, commencing on May 15, 2021. The Notes were sold in the United States to persons reasonably believed to be "qualified institutional buyers" pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act. In connection with issuance of the Notes, the Company capitalized related professional fees of $ 5.2 million as deferred loan costs. The Notes are fully and unconditionally guaranteed on a senior secured basis by each of NAHC, Associated Investors L.L.C. and Academy Managing Co., L.L.C., each a direct or indirect, wholly-owned subsidiary of the Company (collectively, the "Guarantors"), and each of Academy, Ltd.’s future wholly-owned domestic restricted subsidiaries, to the extent such subsidiary guarantees Academy, Ltd.’s senior secured credit facilities or certain capital markets debt. On or after November 15, 2023, Academy, Ltd. may, at its option and on one or more occasions, redeem all or a part of the Notes at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. At any time prior to November 15, 2023, Academy, Ltd. may, at its option and on one or more occasions, redeem all or part of the Notes at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date, plus a "make-whole" premium as described in the Indenture. In addition, at any time prior to November 15, 2023, Academy, Ltd. may, at its option and on one or more occasions, redeem up to 40 % of the aggregate principal amount of the Notes at a redemption price equal to 106.00 % of the aggregate principal amount thereof, with an amount equal to or less than the net cash proceeds from one or more equity offerings to the extent such net cash proceeds are received by or contributed to Academy, Ltd., plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Upon the occurrence of certain events constituting a Change of Control (as defined in the Indenture), Academy, Ltd. will be required to make an offer to repurchase all of the Notes at a price equal to 101 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The Indenture provides for events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest, breach of other agreements in respect of the Notes, acceleration of certain other indebtedness, failure to pay certain final judgments, failure of certain guarantees to be enforceable, failure to perfect certain collateral securing the Notes and certain events of bankruptcy or insolvency, which events of default, if any occur, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding Notes to be due and payable immediately. 92 ABL Facility We refer to the 2015 ABL Facility and the 2020 ABL Facility collectively as the "ABL Facility". On July 2, 2015, Academy, Ltd. entered into a five-year $ 650 million secured asset-based revolving credit facility (the "2015 ABL Facility"). On May 22, 2018, the Company amended the agreement governing the 2015 ABL Facility, to increase the commitment on the facility from $ 650 million to $ 1 billion. In connection with the amendment to the 2015 ABL Facility, the Company capitalized related professional fees of $ 2.8 million as deferred loan costs and wrote of $ 0.1 million in previously capitalized deferred loan costs. The 2015 ABL Facility was scheduled to mature on May 22, 2023, subject to a springing maturity clause which could have been triggered 91 days before the July 2, 2022 maturity of the 2015 Term Loan Facility. On November 6, 2020, Academy, Ltd., as borrower, and the Guarantors, as guarantors, amended the 2015 ABL Facility by entering into an amendment to the First Amended and Restated ABL Credit Agreement, dated as of July 2, 2015, with JPMorgan Chase Bank, N.A. as the administrative agent and collateral agent, letter of credit issuer and swingline lender (the "ABL Agent") and the several lenders party thereto, which ABL Amendment, among other things, extended the maturity of Academy, Ltd.’s asset-based revolving credit facility thereunder to November 6, 2025 (the "2020 ABL Facility"). In connection with the 2020 ABL Facility, the Company capitalized related professional fees of $ 3.1 million as deferred loan costs. The ABL Facility is used to provide financing for working capital and other general corporate purposes, as well as to support certain letters of credit requirements, and availability is subject to customary borrowing base and availability provisions. During the normal course of business, we periodically utilize letters of credit primarily for the purchase of import goods and in support of insurance contracts. As of January 30, 2021, we had outstanding letters of credit of approximately $ 25.4 million, of which $ 20.1 million were issued under the ABL Facility, and we had no borrowings outstanding under the ABL Facility, leaving the available borrowing capacity under the ABL Facility of $ 718.8 million. Borrowings under the ABL Facility bear interest, at our election, at either of (1) LIBOR plus a margin of 1.25 % to 1.75 %, or (2) a base rate equal to the highest of (a) the federal funds rate plus 0.50 %, (b) JPMorgan Chase Bank, N.A.'s "prime rate", or (c) the one-month LIBOR rate plus 1.00 %, plus a margin of 0.25 % to 0.75 %. The ABL Facility also provides a fee applicable to the unused commitments of 0.25 %. The terms and conditions of the ABL Facility also require that we prepay outstanding loans under the ABL Facility under certain circumstances. As of January 30, 2021, no future prepayments of outstanding loans have been triggered under the terms and conditions of the ABL Facility. Liens and guarantees. The ABL Facility has a first priority lien on all Academy, Ltd.'s cash, accounts receivable, inventory, deposit and securities accounts and proceeds therefrom (the "ABL Collateral"). Additionally, the ABL Facility has a second priority lien on all other collateral of the Term Loan. All obligations under the Term Loan and the guarantees of those obligations are secured by: • a second-priority security interest in the ABL Collateral; • a first-priority security interest in, and mortgages on, substantially all present and after acquired tangible and intangible assets of Academy, Ltd and the Guarantors.; and • a first-priority pledge of 100 % of the capital stock of Academy, Ltd. and its domestic subsidiaries and 66 % of the voting capital stock of each of Academy, Ltd.'s foreign subsidiaries, if any, that are directly owned by Academy, Ltd. or a future U.S. guarantor, if any. The Term Loan is guaranteed by the Guarantors on a senior secured basis. All obligations under the Term Loan and the guarantees of those obligations will be secured by: • a second-priority security interest in the ABL Priority Collateral; • a first-priority security interest in, and mortgages on, substantially all present and after acquired tangible and intangible assets of Academy and the Guarantors; and • a first-priority pledge of 100 % of the capital stock of Academy and its domestic subsidiaries and 66 % of the voting capital stock of each of Academy’s foreign subsidiaries, if any, that are directly owned by Academy or a future U.S. guarantor, if any. 93 In order to secure the Notes and the guarantees, Academy, Ltd. and the Guarantors entered into certain security documents with the Notes Collateral Agent, including a security agreement and a pledge agreement, each dated as of November 6, 2020. The Notes and the guarantees are secured by • a first-priority lien on all of Academy, Ltd.’s and the Guarantors’ personal property that secure the Term Loan on a first-priority basis; and • a second-priority lien on Academy, Ltd.’s and the Guarantors’ personal property consisting of accounts and all other rights to payment, inventory, tax refunds, cash, deposit accounts, securities and commodities accounts, and documents and supporting obligations, securing the ABL Facility on a first-priority basis and the Term Loan on a second-priority basis (the "ABL Priority Collateral"). Covenants. The ABL Facility, Term Loan and Notes agreements contain covenants, including, among other things, covenants that restrict Academy, Ltd.'s ability to incur certain additional indebtedness, create or permit liens on assets, engage in mergers or consolidations, pay dividends, make other restricted payments, make loans or advances, engage in transactions with affiliates or amend material documents. Additionally, at certain times, the ABL Facility is subject to a minimum adjusted fixed charge coverage ratio. These covenants are subject to certain qualifications and limitations. We were in compliance with these covenants as of January 30, 2021. As of January 30, 2021, scheduled principal payments on our debt are as follows (amounts in thousands): Fiscal Year 2021 $ 4,000 2022 4,000 2023 4,000 2024 4,000 2025 4,000 Thereafter 780,000 Total $ 800,000 5. Derivative Financial Instruments We have historically used interest rate swap agreements to hedge market risk relating to possible adverse changes in interest rates. All interest rate swaps had been designated as cash flow hedges of variable rate interest payments on borrowings under the Term Loan. On October 28, 2020, we determined that a portion of the underlying cash flows related to $ 100.0 million of swap notional principal amount was no longer probable of occurring over the remaining term of the interest rate swaps as a result of the Company's refinancing transactions (see Note 4). As a result, we reclassified approximately $ 1.3 million of losses from accumulated other comprehensive loss ("AOCI") to other (income) expense, net in the third quarter of 2020 related to the portion of the forecasted transaction no longer considered probable of occurring. On January 19, 2021, we settled our three remaining outstanding interest rate swaps in full, which were scheduled to expire on various dates during 2021, for $ 4.1 million. As of January 30, 2021, we do not have any derivative financial instruments outstanding. 94 The fair value of the interest rate swaps is as follows (amounts in thousands) as of: January 30, 2021 February 1, 2020 Derivatives designated as hedging instruments Assets Amounts included in other current assets $ — $ — Amounts included in other noncurrent assets — — Liabilities Amounts included in accrued expenses and other current liabilities — 6,130 Amounts included in other long-term liabilities — 1,976 Total derivatives designated as hedging instruments net liabilities $ — $ ( 8,106 ) For derivatives designated as hedging instruments, amounts included in AOCI are reclassified to interest expense in the same period during which the hedged transaction affects earnings, which is as interest expense is recorded on the underlying Term Loan. The impact of gains and losses related to interest rate swaps that are deferred into AOCI and subsequently reclassified into expense as follows (amounts in thousands): Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Accumulated Other Comprehensive Income (Loss), beginning $ ( 8,066 ) $ 8,448 $ 9,967 Loss deferred into AOCI (net of tax impact of $ 350 ) ( 6,303 ) ( 16,096 ) ( 2,625 ) Increase (decrease) to interest expense (net of tax impact of $ 1,000 ) 10,045 ( 418 ) 1,106 Loss on swaps from debt refinancing in other (income) expense, net (net of tax impact of $ 330 ) 1,000 — — Accumulated Other Comprehensive Income (Loss), ending $ ( 3,324 ) $ ( 8,066 ) $ 8,448 6. Fair Value Measurements Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of the assets and liabilities. The fair value measurements are classified as either: • Level 1 which represents valuations based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; • Level 2 which represents valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and • Level 3 which represents valuations based on prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy in which the fair value measurement is classified in its entirety, is based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. There were no transfers made into or out of the Level 1, 2 or 3 categories during any period presented. 95 The following table provides the fair value hierarchy for our derivative financial instruments (amounts in thousands) as of: Fair Value Hierarchy January 30, 2021 February 1, 2020 Assets Interest rate swap Level 2 $ — $ — Liabilities Interest rate swap Level 2 $ — $ 8,106 We value our derivative financial instruments using a discounted cash flow analysis based on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market based inputs including interest rates and implied volatilities. Our valuations also consider both our own and the respective counterparty’s non-performance risk. We have considered unobservable market factors such as the likelihood of default by us and our counterparty, our net exposures, credit enhancements, and remaining maturities in determining a credit valuation adjustment to include as part of the fair value of our derivative financial instruments. To date, the credit valuation adjustment did not comprise a material portion of the fair value of the derivative financial instruments. Therefore, we consider our derivative financial instruments to fall within Level 2 of the fair value hierarchy. Non-Financial Assets Measured on a Non-Recurring Basis Certain non-financial assets are subject to periodic impairment tests and are not measured to fair value on a recurring basis. These assets include property and equipment, goodwill and our Trade Name. During 2018, we recorded full property and equipment impairment charges of $ 1.4 million on one project and one store that we continue to operate. The related charges are included in selling, general and administrative expenses in the consolidated statement of income. The fair value for each store was determined by using a discounted cash flow model of projected store income, which we have classified as Level 3 of the fair value hierarchy. Other Financial Instruments Periodically we make cash investments in money market funds comprised of U.S. Government treasury bills and securities, which are classified as cash and redeemable on demand. We held investments in money market funds of $ 284.0 million and $ 113.3 million as of January 30, 2021 and February 1, 2020, respectively. The fair value of the Term Loan is estimated using a discounted cash flow analysis based on quoted market prices for the instrument in an inactive market and is therefore classified as Level 2 within the fair value hierarchy. As of January 30, 2021 and February 1, 2020, the estimated fair value of the Term Loan was $ 0.8 billion and $ 1.2 billion, respectively. As borrowings on the ABL Facility are generally repaid in less than 12 months, we believe that fair value approximates the carrying value. 7. Property and Equipment Property and equipment consists of the following (amounts in thousands) as of: January 30, 2021 February 1, 2020 Leasehold improvements $ 438,287 $ 436,807 Equipment and software 561,333 537,364 Furniture and fixtures 319,764 316,420 Construction in progress 23,575 17,639 Land 3,699 3,698 Total property and equipment 1,346,658 1,311,928 Accumulated depreciation and amortization ( 968,398 ) ( 870,521 ) Property and equipment, net $ 378,260 $ 441,407 Depreciation expense was $ 105.5 million, $ 117.3 million and $ 130.4 million in 2020, 2019 and 2018, respectively. 96 8. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (amounts in thousands) as of: January 30, 2021 February 1, 2020 Accrued interest $ 7,684 $ 7,835 Accrued personnel costs 113,032 54,065 Accrued professional fees 2,547 2,451 Accrued sales and use tax 14,980 12,651 Accrued self-insurance 13,471 14,107 Deferred revenue - gift cards and other 76,778 70,220 Income taxes payable 23,730 4,941 Interest rate swaps — 6,129 Property taxes 16,978 16,919 Sales return allowance 5,800 5,500 Other 16,351 16,563 Accrued expenses and other current liabilities $ 291,351 $ 211,381 9. Equity and Share-Based Compensation On September 29, 2020, the ASO, Inc. Board of Directors adopted the 2020 Omnibus Incentive Plan (the "2020 Omnibus Incentive Plan"), which became effective on October 1, 2020. The plan reserves a total of 5,150,000 shares of common stock for issuance. Concurrent with the adoption of the 2020 Omnibus Incentive Plan, the NAHC 2011 Unit Incentive Plan (the "2011 Unit Incentive Plan") was frozen and no further issuances will be permitted as part of the 2011 Unit Incentive Plan. As of January 30, 2021, there were 4,940,723 shares that were authorized and available for grant under the 2020 Omnibus Incentive Plan. 2011 Unit Incentive Plan The 2011 Unit Incentive Plan provides for the grant of certain equity incentive awards (each, an "Award"), such as options to purchase ASO, Inc. common stock (each, a "Unit Option") and restricted units that may settle in ASO, Inc. common stock (each, a "Restricted Unit") to our directors, executives, and eligible employees of the Company. Unit Options granted under the 2011 Unit Incentive Plan consist of Unit Options that vest upon the satisfaction of time-based requirements (each, a "Service Unit Option") and Unit Options that vest upon the satisfaction of both time-based requirements and Company performance-based requirements (each, a "Performance Unit Option"). Restricted Units granted under the 2011 Unit Incentive Plan consist of Restricted Units that vest upon the satisfaction of time-based requirements (each, a "Service Restricted Unit") and Restricted Units that vest upon the satisfaction of a liquidity event-based requirement together with a time-based requirement and/or a performance-based requirement (each, a "Liquidity Event Restricted Unit"). In each case, vesting of the Company’s outstanding and unvested Unit Options and Restricted Units is contingent upon the holder’s continued service through the date of each applicable vesting event. Concurrent with the adoption of the 2020 Omnibus Incentive Plan on October 1, 2020, no further Awards are authorized to be granted under the 2011 Unit Incentive Plan. 2020 Omnibus Incentive Plan The 2020 Omnibus Incentive plan provides for the grant of Awards such as options to purchase ASO, Inc. common stock (each, a "Stock Option") and restricted stock units which may settle in ASO, Inc. common stock (each, a "Restricted Stock Unit") to our directors, executives, and eligible employees of the Company. Stock Options granted under the 2020 Omnibus Incentive Plan consist of Stock Options that vest upon the satisfaction of time-based requirements (each, a "Service Stock Option" and Service Unit Options and Service Stock Options together are "Service Options"). 97 Restricted Stock Units granted under the 2020 Omnibus Incentive Plan consist of Restricted Stock Units that vest upon the satisfaction of time-based requirements (each, a "Service Restricted Stock Unit") and Restricted Stock Units that vest upon the satisfaction of a time-based requirement and performance-based requirement (each, a "Performance Restricted Stock Unit"). In each case, vesting of the Company’s outstanding and unvested Stock Options and Restricted Stock Units is contingent upon the holder’s continued service through the date of each applicable vesting event. Distribution On August 28, 2020, NAHC paid a $ 257.0 million, or $ 1.1257 per unit (or $ 3.5460 as converted using the Contribution Ratio), distribution to its members of record as of August 25, 2020. Cash on hand was used to fund $ 248.0 million of the distribution, with the remainder distributed through an offset of outstanding loans receivable from one member and state income tax withholding made on behalf of NAHC's members. Holders of the outstanding granted equity Awards are entitled to receive value equal to $ 1.1257 per Award (or $ 3.5460 as converted using the Contribution Ratio), which was or will be made in the form of cash payments, additional Restricted Unit grants or Unit Option exercise price adjustments. Cash payments due for unvested Awards will be payable upon vesting of such Awards. In accordance with the terms of the 2011 Unit Incentive Plan, the Company made the following adjustments to each outstanding Award (per unit components, shares and exercise prices shown above and below are converted using the Contribution Ratio as described in the Retrospective Presentation of Ownership Exchange in Note 2): • Exercise price reductions of $ 0.28 for 9,788,000 Unit Options (or $ 0.89 for 3,107,301 Stock Options, as converted); • Exercise price reductions of $ 1.12 for 1,746,594 Unit Options (or $ 3.53 for 554,474 Stock Options, as converted); • Additional Restricted Unit grants of 159,362 units (or 50,590 Liquidity Event Restricted Units, as converted); and • Cash payments for vested Unit Options and vested Restricted Units ("Share-Based Award Payments") of $ 21.0 million were paid through January 30, 2021. Share-Based Award Payments payable as of January 30, 2021 for unvested awards is $ 11.2 million, which is reflected within accrued expenses and other current liabilities and other long-term liabilities on the Company's consolidated balance sheets. These exercise price adjustments did not increase the value of the Unit Options and no related additional equity compensation expense was or will be incurred. On June 22, 2018, the Company reduced the exercise price on vested and unvested options to fair market value for current employees holding options with exercise prices greater than fair market value. The repricing affected 184 employees and 6,909,475 options. Equity compensation expense incurred at the time of the repricing was $ 0.7 million. Equity compensation expense was $ 31.6 million in 2020, which includes approximately $ 19.9 million of equity compensation expense associated with the expensing of certain outstanding restricted stock units as a result of the liquidity condition being achieved upon completion of our IPO. Equity compensation expense was $ 7.9 million and $ 4.6 million in 2019 and 2018, respectively. These costs are included in selling, general and administrative expenses in the statements of income. As of January 30, 2021, unrecognized compensation cost related to Unit Options and Restricted Units of $ 31.5 million is expected to be recognized over a weighted average life of 2.2 years. The total fair value of Restricted Units vested was $ 14.4 million, $ 0.3 million and $ 0.2 million for 2020, 2019 and 2018, respectively. Service Option and Performance Option Fair Value Assumptions The fair value for Service Options and Performance Options granted was estimated using a Black-Scholes option-pricing model. The expected lives of the Service Options and Performance Options granted were based on the "SEC simplified" method and a mid-point assumption, respectively. Expected price volatility was determined based on the implied volatilities of comparable companies over a historical period that matches the expected life of the Unit Options. The risk-free interest rate was based on the expected U.S. Treasury rate over the expected life. The dividend yield was based on the expectation that no dividends will be paid. The assumptions used to calculate the fair value of Unit Options granted are evaluated and modified, as necessary, to reflect current market conditions and experience. 98 The following table presents the assumptions and grant date fair values for Service Options granted in 2020, 2019 and 2018: Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Expected life in years 6.2 6.2 6.2 Expected volatility 53 % to 55 % 52 % 50 % to 55 % Weighted-average volatility 53.1 % 52.0 % 54.1 % Risk-free interest rate .39 % to .76 % 1.4 % to 2.5 % 2.6 % to 2.9 % Dividend yield — — — Weighted-average grant date fair value - Service Options (1) $ 8.49 $ 8.66 $ 8.98 Weighted-average grant date fair value - Performance Options (1) $ — $ 8.63 $ 8.95 (1) See Retrospective Presentation of Ownership Exchange in Note 2. Unit Option Activity The Company’s outstanding and unvested Service Options typically vest ratably over a four-year period, on each anniversary of their grant date. In the event of certain Company change of control transactions, the Company’s then-outstanding and unvested Service Options will become fully vested and exercisable. The Company’s outstanding and unvested Performance Options typically vest ratably over a four-year period, after the conclusion of each fiscal year and upon our board of managers’ determination that the Company has achieved certain pre-determined annual earnings before interest, taxes, depreciation and amortization ("EBITDA") targets for such fiscal year. The Company’s outstanding and unvested Performance Options may, on a case-by-case basis, also grant certain additional vesting rights, whereby any Performance Options that do not vest due to missed annual EBITDA targets may nevertheless partially or fully vest as a result of certain alternative events, including, as examples, the Company achieving a pre-determined cumulative EBITDA target for a set of fiscal years, or the Company achieving a pre-determined ASO, Inc. stock price target on a specified date, or the Company completing a change in control. Unit Option activity is as follows: Service-Based Unit Options (1) Unit Options (2) Weighted Average Exercise Price (2) Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of February 3, 2018 4,552,667 $ 12.66 6.0 $ 18,415 Granted or modified 3,064,943 16.66 Canceled or modified ( 1,872,502 ) 18.87 Forfeited ( 789,464 ) 17.39 Exercised — — Outstanding as of February 2, 2019 4,955,644 $ 12.03 5.7 $ 33,157 Granted or modified 1,385,760 16.60 Canceled or modified ( 191,103 ) 14.49 Forfeited ( 359,993 ) 16.47 Exercised — — Outstanding as of February 1, 2020 5,790,308 $ 12.76 5.5 $ 28,855 Granted or modified 1,449,900 16.87 Canceled or modified ( 205,894 ) 14.23 Forfeited ( 327,836 ) 16.82 Exercised ( 423,696 ) 5.03 Outstanding as of January 30, 2021 (3) 6,282,782 $ 13.53 5.5 $ 50,055 Exercisable as of January 30, 2021 3,755,459 $ 11.40 3.6 $ 37,941 (1) The fair value of a membership unit (2) as of each period end was $ 13.86 , $ 18.62 , $ 17.61 and $ 21.50 for the fiscal years 2017, 2018, 2019 and 2020. (2) See Retrospective Presentation of Ownership Exchange in Note 2. (3) The Company has elected to recognize forfeitures as they occur. Therefore, the number of awards vested and expected to vest is equal to the awards outstanding. 99 Performance-Based Unit Options (1) Unit Options (2) Weighted Average Exercise Price (2) Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of February 3, 2018 3,143,605 $ 9.73 4.8 $ 18,658 Granted or modified 1,038,837 16.66 Canceled or modified ( 716,869 ) 18.46 Forfeited ( 391,069 ) 17.61 Exercised — — Outstanding as of February 2, 2019 3,074,504 $ 9.01 4.1 $ 29,960 Granted or modified 423,948 16.60 Canceled or modified ( 72,609 ) 12.29 Forfeited ( 178,994 ) 16.60 Exercised — — Outstanding as of February 1, 2020 3,246,849 $ 9.51 3.6 $ 26,838 Granted or modified — — Canceled or modified ( 97,480 ) 10.92 Forfeited ( 85,564 ) 16.45 Exercised ( 115,184 ) 4.65 Outstanding as of January 30, 2021 (3) 2,948,621 $ 8.81 2.5 $ 37,422 Exercisable as of January 30, 2021 2,395,315 $ 6.99 1.3 $ 34,746 (1) The fair value of a membership unit (2) as of each period end was $ 13.86 , $ 18.62 , $ 17.61 and $ 21.50 for the fiscal years 2017, 2018, 2019 and 2020. (2) See Retrospective Presentation of Ownership Exchange in Note 2. (3) The Company has elected to recognize forfeitures as they occur. Therefore, the number of awards vested and expected to vest is equal to the awards outstanding. Restricted Unit Activity Restricted Unit activity is as follows: Service Restricted Units Liquidity Event Restricted Units Performance Restricted Units Units (1) Weighted Average Grant Date Fair Value (1) Units (1) Weighted Average Grant Date Fair Value (1) Units (1) Weighted Average Grant Date Fair Value (1) Non-vested as of February 3, 2018 9,213 $ 22.21 433,685 $ 18.90 — $ — Granted 20,015 16.47 859,133 16.82 — — Vested ( 11,017 ) 18.59 — — — — Forfeited — — ( 248,347 ) 18.24 — — Non-vested as of February 2, 2019 18,211 $ 16.47 1,044,471 $ 17.36 — $ — Granted 12,070 16.57 45,265 16.57 — — Vested ( 18,210 ) 16.57 — — — — Forfeited — — ( 44,923 ) 16.70 — — Non-vested as of February 1, 2020 12,071 $ 16.57 1,044,813 $ 17.36 — $ — Granted 32,049 17.01 1,185,474 17.99 16,328 13.87 Vested ( 12,071 ) 16.58 ( 802,498 ) 17.64 — — Forfeited — — ( 88,459 ) 17.37 — — Non-vested as of January 30, 2021 32,049 $ 17.01 1,339,330 $ 17.74 16,328 $ 13.87 (1) See Retrospective Presentation of Ownership Exchange in Note 2. 100 The Company’s outstanding and unvested Service Restricted Units typically vest 100 % on the six-month or one-year anniversary of their grant date. In the event of certain Company change of control transactions, the Company’s then-outstanding and unvested Service Restricted Units will become fully vested and exercisable. The Company’s outstanding and unvested Liquidity Event Restricted Units typically vest either (i) over a four-year period at rates of 30 %, 30 %, 20 % and 20 % per anniversary of the Liquidity Event Restricted Unit holder’s employment start date, so long as the Company completes an initial public offering prior to the fifth anniversary of their grant date, or (ii) immediately at a rate of 100 %, upon the completion of certain Company change of control transactions, so long as the Company completes such change of control transaction prior to the fifth anniversary of their grant date. The Company’s outstanding and unvested Liquidity Event Restricted Units began being expensed on October 6, 2020, concurrent with the completion of the IPO and the performance objective was met in accordance with ASC 718. Additionally, in connection with the completion of the IPO, the Company issued performance restricted units to key team members which will vest 25 % on the first anniversary of the grant date and 75 % on the second anniversary of the grant date. The Company’s outstanding and unvested Performance Restricted Units typically vest either (i) over a four-year period at rates of 25 %, 25 %, 25 % and 25 % per anniversary of the Performance Restricted Unit holder’s grant date, so long as the Company achieves the performance metric for the grant year, (ii) achieves a stated target share price, or (iii) a change of control occurring during the grant year the company offering prior to the fifth anniversary of their grant date, or (ii) immediately at a rate of 100 %, upon the completion of certain Company change of control transactions, so long as during the twenty-four month period following such change of control the unit holder's service is terminated without cause or they submit their resignation for good reason, as defined in the award agreement. 101 10. Earnings per Common Share Basic earnings per common share is calculated based on net income divided by the basic weighted average common shares outstanding during the period, and diluted earnings per common share is calculated based on net income divided by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding is based on the basic weighted average common shares outstanding plus any potential dilutive effect of stock-based awards outstanding during the period using the treasury stock method, which assumes the potential proceeds received from the dilutive stock options are used to purchase treasury stock. Anti-dilutive stock-based awards do not include awards which have a performance or liquidity event target which has yet to be achieved. Basic and dilutive shares outstanding are calculated as follows (amounts in thousands): Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Net income $ 308,764 $ 120,043 $ 21,442 Weighted average common shares outstanding - basic (1) 77,994 72,477 72,432 Dilutive effect of Service Restricted Units and Service Restricted Stock Units (1) 7 10 16 Dilutive effect of Liquidity Event Restricted Units and Performance Restricted Stock Units (1) 1,224 — — Dilutive effect of Service Options (1) 773 917 1,282 Dilutive effect of Performance Unit Options and Performance Stock Options (1) 1,433 1,391 1,468 Weighted average common shares outstanding - diluted (1) 81,431 74,795 75,198 Earnings per common share - basic $ 3.96 $ 1.66 $ 0.30 Earnings per common share - diluted $ 3.79 $ 1.60 $ 0.29 Anti-dilutive stock-based awards excluded from diluted calculation (1) 349 582 2,377 (1) See Retrospective Presentation of Ownership Exchange in Note 2 11. Income Taxes Prior to October 1, 2020, the Company was treated as a flow through entity for U.S. federal income tax purposes and thus no federal income tax expense was recorded in our statements of income for periods prior to October 1, 2020. Our tax rate prior to October 1, 2020 was almost entirely the result of state income taxes. In connection with our IPO, as a result of the Reorganization Transactions (see Note 1) completed on October 1, 2020, as described further in the Prospectus, on and after October 1, 2020, the Company is treated as a U.S. corporation for U.S. federal, state, and local income tax purposes and accordingly, a provision for income taxes has been recorded for the anticipated tax consequences of our reported results of operations for federal, state and local income taxes since October 1, 2020. As a result of the Reorganization Transactions, the Company recorded a net deferred tax liability position of $ 137.3 million, which consisted of the Company’s difference between the Company's financial statement carrying value and the outside tax basis in its NAHC membership units, immediately following the completion of the Reorganization Transactions, measured at the enacted federal and state income tax rates. Additionally, $ 4.6 million in current tax liability was assumed by the Company as part of the Reorganization Transactions. The combined entry was recorded as a 102 cumulative adjustment to additional paid-in capital for the year equal to $ 141.9 million, as reflected in the statement of stockholders' equity. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in the U.S. on March 27, 2020, and the Consolidated Appropriations Act of 2021 was enacted on December 27, 2020. These legislative actions did not significantly impact our full year effective tax rate in fiscal 2020. The income tax provision consists of the following (amounts in thousands) as of: Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Current expense: Federal $ 23,403 $ — $ — State 6,231 2,501 2,412 Foreign 21 19 33 Total current expense 29,655 2,520 2,445 Deferred expense (benefit): Federal 170 — — State 529 318 ( 514 ) Foreign 2 ( 21 ) 20 Total deferred expense (benefit) 701 297 ( 494 ) Income tax expense $ 30,356 $ 2,817 $ 1,951 A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is as follows: Fiscal Year Ended January 30, 2021 February 1, 2020 February 2, 2019 Federal income tax at the statutory rate 21.0 % 21.0 % 21.0 % State income tax, net of federal benefit 1.7 2.3 8.1 Effect of pre-IPO pass-through income allocated to our members ( 13.7 ) ( 21.4 ) ( 23.8 ) Effect of permanent items 0.0 0.4 2.8 Other, including foreign 0.0 0.0 0.2 Effective income tax rate 9.0 % 2.3 % 8.3 % The effective tax rate for the periods reflected is less than the U.S. federal tax rate on corporations primarily as a result of the Company’s status as a flow-through entity prior to October 1, 2020. The fiscal year ended January 30, 2021 includes four months of activity subject to U.S. federal and state income tax in addition to the historically reported Texas franchise tax as a result of the Reorganization Transactions. For complete annual periods on and after October 1, 2020, no portion of the Company’s income remains flow-through to the prior members of NAHC and our estimated effective tax rate is between 24 % and 25 % for the full year. 103 Components of deferred tax assets and liabilities consist of the following (amounts in thousands) as of: January 30, 2021 February 1, 2020 Deferred tax assets: Other $ — $ 220 Total deferred tax assets — 220 Deferred tax liabilities: Other ( 345 ) — Investment in NAHC ( 138,358 ) — Total deferred tax liabilities ( 138,703 ) — Net deferred tax asset (liability) $ ( 138,703 ) $ 220 The Reorganization Transactions (see Note 1) resulted in ASO, Inc.'s ownership of 100 % of NAHC which operated as a tax partnership through the fiscal year ended January 30, 2021. The deferred tax liability as of January 30, 2021 reflects the excess of financial statement carrying value over our tax basis in NAHC membership units measured using the federal income tax rate of 21% and our weighted average state income tax rate equal to approximately 2.4 % net of federal tax benefit. For the year ended February 1, 2020, the net deferred tax asset is included in other noncurrent assets. Management evaluates the realizability of the deferred tax assets and the need for additional valuation allowances annually. As of January 30, 2021, based on current facts and circumstances, management believes that it is more likely than not that the Company will realize benefit for its gross deferred tax assets. As of January 30, 2021, we had no unrecognized tax benefits and we do not anticipate that unrecognized tax benefits will significantly increase or decrease over the next twelve months. The Company files a consolidated federal income tax return and files tax returns in various state and local jurisdictions. The statute of limitations is open for federal and state tax audits for the tax fiscal years ending 2018 through 2020, and 2017 through 2020, respectively. 12. Leases We lease all of our retail stores, distribution centers and corporate offices. Our leases primarily relate to building leases, which generally include options to renew at our sole discretion for five years or more. We regularly extend options for our building leases, which constitutes a lease modification and such events require a re-measurement of the lease liability at current discount rates. The life of leasehold improvement assets are limited by the expected lease term. Additionally, we have certain agreements for equipment rentals, which are typically 12 months or less in duration. As of January 30, 2021, all of our leases are classified as operating leases. In addition, in certain situations, we may sublease real estate to third parties. Our sublease portfolio consists mainly of former store locations for which we are still under lease and existing store leases in which we have excess or unused space. In April 2020, the Financial Accounting Standards Board issued Staff Q&A - Topic 842 and Topic 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic . This guidance provides entities with the option to elect to account for certain lease concessions as though the enforceable rights and obligations had existed in the original lease. As a result, an entity will not need to reassess each existing contract to determine whether enforceable rights and obligations for concessions exist and an entity can elect to apply or not to apply the lease modification guidance in Accounting Standards Codification Topic 842, Leases , to those contracts. During the year ended January 30, 2021, the Company received $ 2.5 million in lease expense credit related to landlord abated rent as a result of the elections made under this guidance. Additionally, during the year ended January 30, 2021, the Company signed 46 lease extensions requiring lease modification accounting treatment. 104 The components of lease expense and sublease income included in selling, general and administrative ("SG&A") expenses on our statement of income is as follows (amounts in thousands): Fiscal year ended January 30, 2021 February 1, 2020 Operating lease expense $ 196,794 $ 195,301 Short-term lease expense — — Variable lease expense 5,410 7,736 Sublease income ( 756 ) ( 1,591 ) Net lease expense $ 201,448 $ 201,446 Information about our operating leases is as follows (dollar amounts in thousands): Fiscal year ended January 30, 2021 February 1, 2020 Right-of-use assets obtained in exchange for new operating lease liabilities $ 86,782 $ 57,383 Cash paid for amounts included in the measurement of lease liabilities $ 179,723 $ 192,849 January 30, 2021 February 1, 2020 Weighted-average remaining lease term in years 11.0 10.7 Weighted-average incremental borrowing rate 9.09 % 8.89 % As most of our leases do not provide an implicit rate of interest, we use our incremental borrowing rate, which is based on the market lending rates for companies with comparable credit ratings, to determine the present value of lease payments on lease commencement or remeasurement. The remaining maturities of lease liabilities by fiscal year as of January 30, 2021 are as follows (amounts in thousands): 2021 $ 196,948 2022 195,066 2023 187,159 2024 178,871 2025 172,918 2026 164,884 After 2026 887,391 Total lease payments (1) 1,983,237 Less: Interest ( 752,811 ) Present value of lease liabilities $ 1,230,426 (1) Minimum lease payments have not been reduced by sublease rentals of $ 1.7 million due in the future under non-cancelable subleases. 13. Related Party Transactions Monitoring Agreement On August 3, 2011 (the "Effective Date"), we entered into a monitoring agreement (the "Monitoring Agreement"), with Kohlberg Kravis Roberts & Co. L.P. (the "Adviser") pursuant to which the Adviser provides advisory, consulting and financial services to us. In accordance with the terms of the Monitoring Agreement, we paid an aggregate annual advisory fee which increases by 5.0 % annually on each anniversary of the Effective Date. The Adviser also charged us a customary fee for services rendered in connection with securing, structuring and negotiating equity and debt financings by us. Additionally, we were required to reimburse the Adviser for any out-of-pocket expenses in connection with these services. The Monitoring Agreement continued in effect from year-to-year, unless amended or terminated by the Adviser and us. 105 Upon the completion of the IPO, in the third quarter of 2020 the Monitoring Agreement terminated and we recognized the final termination fee of $ 12.3 million. The termination fee is equal to the net present value of the advisory fees that would have been paid from the termination date through the twelfth anniversary of the Effective Date of the Monitoring Agreement. We recognized advisory fees related to the Monitoring Agreement, including reimbursement of expenses, of approximately $ 14.8 million, $ 3.6 million and $ 3.5 million in 2020, 2019 and 2018, respectively. These expenses are included in selling, general and administrative expenses in the consolidated statements of income. Transaction and Other Fee Arrangements On October 6, 2020, ASO, Inc. completed the IPO. The Company paid $ 2.7 million in fees to KKR Capital Markets LLC ("KCM"), an affiliate of KKR, for underwriting services in connection with the IPO. On November 3, 2020, ASO, Inc. completed the IPO Over-Allotment Exercise. The Company paid $ 0.3 million in fees to KCM for underwriting services in connection with the IPO Over-Allotment Exercise. On November 6, 2020, the Company issued the Notes, entered into the 2020 Term Loan Facility, and entered into the 2020 ABL Amendment. The Company paid $ 2.5 million in fees to KCM in connection with the Refinancing Transactions. These fees are recorded as deferred loan costs, net of amortization, within the long-term debt on the balance sheets. Other Related Party Transactions On January 27, 2021, in connection with the Secondary Offering, the Company entered into an Underwriting Agreement with affiliates of KKR (as selling stockholders), the several other selling stockholders named therein, and the several underwriters named therein, including KCM (as underwriter). The Secondary Offering was completed on February 1, 2021. The Company did not pay KCM any fees in connection with the Secondary Offering. KKR has ownership interest in a broad range of portfolio companies and we may enter into commercial transactions for goods or services in the ordinary course of business with these companies. We do not believe such transactions are material to our business. Investments in Managers For the fiscal years ended February 1, 2020 and February 2, 2019, executives and directors of the Company made cash purchases of Redeemable Membership Units in Managers for approximately $ 0.1 million and $ 1.3 million, respectively. The cash consideration paid for the Redeemable Membership Units was concurrently contributed to NAHC by Managers in exchange for a number of NAHC Membership Units equal to the number of Redeemable Membership Units purchased. There were no investments in Managers for the fiscal year ended January 30, 2021. During the year ended January 30, 2021, Managers repurchased at fair market value approximately $ 37.0 thousand of Redeemable Membership Units from a director of the Company for cash. During the year ended February 1, 2020, Managers repurchased at fair market value approximately $ 0.5 million of Redeemable Membership Units from a director and an executive of the Company for cash. NAHC concurrently repurchased from Managers for cash, at fair market value, a number of NAHC membership units equal to the number of Redeemable Membership Units repurchased from the director and executive. Note Receivable from Member and Distribution Prior to October 1, 2020, under NAHC's LLC agreement, certain members could require the Company to provide a tax loan on their behalf under certain circumstances. On April 10, 2019, the Company loaned $ 4.0 million with a note receivable issued to a member. The note receivable bears semi-annual compounding interest at 2.5 % with outstanding principal and interest due on April 10, 2022. This note receivable was recorded in other non-current assets on the balance sheet. On April 5, 2018, the Company loaned $ 4.1 million with a note receivable issued to a member. The note receivable bears semi-annual compounding interest at 2.1 %, with outstanding principal and interest due on April 5, 2021, and was recorded in prepaid expenses and other non-current assets on the balance sheet. On August 28, 2020, the Company made a distribution to its members of record as of August 25, 2020, of $ 257.0 million (see Note 9). Of the $ 257.0 million, $ 8.5 million was used to offset and satisfy the remaining balances of the notes receivable and related interest receivable from a member. 106 14. Commitments and Contingencies Technology Related Commitments and Other As of January 30, 2021, we have obligations under technology related contractual commitments as well as other commitments, such as construction commitments, in the amount of $ 10.8 million. Of such commitments, approximately $ 8.8 million is payable in the next 12 months. Financial Guarantees During the normal course of business, we enter into contracts that contain a variety of representations and warranties and provide general indemnifications. The maximum exposure under these arrangements is unknown as this would involve future claims that may be made against us that have not yet occurred. However, based on experience, we believe the risk of loss to be remote. Legal Proceedings We are a defendant or co-defendant in lawsuits, claims and demands brought by various parties relating to matters normally incident to our business. No individual case, or group of cases presenting substantially similar issues of law or fact, is expected to have a material effect on the manner in which we conduct our business or on our consolidated results of operations, financial position or liquidity. The majority of these cases are alleging product, premises, employment and/or general liability. Reserves have been established that we believe to be adequate based on our current evaluations and experience in these types of claim situations; however, the ultimate outcome of these cases cannot be determined at this time. We believe, taking into consideration our indemnities, defenses, insurance and reserves, the ultimate resolution of these matters will not have a material impact on our financial position, results of operations or cash flows. Sponsorship Agreement and Intellectual Property Commitments We periodically enter into sponsorship agreements generally with professional sports teams, associations, events, networks or individual professional players and collegiate athletic programs in exchange for marketing and advertising promotions. We also enter into intellectual property agreements whereby the Company receives the right to use third-party owned trademarks typically in exchange for royalties on sales. These agreements typically contain a one to three-year term and contractual payment amounts required to be paid by the Company. As of January 30, 2021, we have $ 12.2 million in related commitments through 2027, of which $ 6.9 million is payable in next 12 months. 15. Employee Benefit Plans 401(k) Plan We sponsor a safe harbor defined contribution 401(k) profit sharing plan (the "401(k) Plan") for our eligible employees. The 401(k) plan includes an eligible employee compensation deferral feature, Company matching contributions and a Company profit sharing component. Eligible employees are permitted to contribute up to 75 % of their eligible compensation on a pretax basis to the 401(k) Plan, subject to Internal Revenue Service limitations. We match 100 % of the money contributed by a plan participant to the 401(k) Plan each pay period, on a dollar-for-dollar basis, up to 6 % of a plan participant’s eligible compensation during such pay period. Annual Company profit sharing contributions are made at the discretion of our board of directors, subject to certain limitations. The 401(k) Plan may be amended or terminated at our discretion. Employer contributions related to the 401(k) Plan totaled $ 13.2 million, $ 12.4 million and $ 11.9 million in 2020, 2019 and 2018, respectively. 107 16. Selected Quarterly Financial Data (Unaudited) The summarized quarterly financial information for the fiscal years ended 2020 and 2019 are reflected in the table below (in thousands, except earnings per share data): 1st 2nd 3rd 4th (amounts in thousands) Quarter Quarter Quarter Quarter 2020: Net sales $ 1,136,301 $ 1,606,420 $ 1,349,076 $ 1,597,436 Gross margin 297,945 496,501 440,511 499,088 Operating income 14,022 183,788 81,556 141,032 (Gain) loss on early retirement of debt, net — ( 7,831 ) — 4,249 Net income (loss) $ ( 10,020 ) $ 167,676 $ 59,586 $ 91,522 Earnings (loss) per common share: Basic (1) $ ( 0.14 ) $ 2.31 $ 0.78 $ 1.01 Diluted (1) $ ( 0.14 ) $ 2.25 $ 0.74 $ 0.97 Weighted average common shares outstanding: Basic (1) 72,474 72,478 76,771 90,253 Diluted (1) 72,474 74,439 80,714 94,377 2019: Net sales $ 1,076,792 $ 1,237,410 $ 1,145,203 $ 1,370,492 Gross margin 312,996 385,204 362,422 370,532 Operating income 11,394 72,634 53,176 42,217 Gain on early retirement of debt, net ( 41,138 ) ( 1,127 ) — — Net income $ 25,406 $ 48,347 $ 28,552 $ 17,738 Earnings (loss) per common share: Basic (1) $ 0.35 $ 0.67 $ 0.39 $ 0.24 Diluted (1) $ 0.34 $ 0.65 $ 0.38 $ 0.24 Weighted average common shares outstanding: Basic (1) 72,473 72,485 72,484 72,468 Diluted (1) 74,697 74,507 75,201 74,974 (1) See Retrospective Presentation of Ownership Exchange in Note 2. Item 16. Form 10–K Summary Not applicable. 108 Index to Exhibits Exhibit Number Description of Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2020). 3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 6, 2020). 4.1 Amendment to the Registration Rights Agreement, dated as of October 6, 2020, by and among the Registrant, Allstar LLC and New Academy Holding Company, LLC (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2020). 4.2 Indenture, dated as of November 6, 2020, by and among Academy, Ltd., as issuer, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee and notes collateral agent (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 6, 2020). 4.3* Description of Securities Registered Under Section 12 of the Exchange Act. 10.1 Second Amended and Restated Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C., as Texas Intermediate Holdcos, the several lenders from time to time party thereto, Credit Suisse AG, Cayman Islands Branch, as the administrative agent and collateral agent and the several other parties named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 6, 2020). 10.2 Amended and Restated Term Loan Security Agreement, dated as of July 2, 2015, among Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto, and Morgan Stanley Senior Funding, Inc., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.3 Amended and Restated Term Loan Pledge Agreement, dated as of July 2, 2015, among New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto and Morgan Stanley Senior Funding, Inc., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.4 ABL Intercreditor Agreement, dated July 2, 2015, among JPMorgan Chase Bank, N.A., as agent for the ABL Secured Parties referred to therein, Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent for the Term Loan Secured Parties referred to therein, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, Academy, Ltd., as Borrower, and each of the subsidiaries of the Borrower listed on the signature pages thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.5 Joinder to ABL Intercreditor Agreement, dated November 6, 2020, among JPMorgan Chase Bank, N.A., as agent for the ABL Secured Parties referred to therein, Credit Suisse AG, Cayman Islands Branch, as agent for the Term Loan Secured Parties referred to therein, and The Bank of New York Mellon Trust Company, N.A., as collateral agent for the Additional Debt Secured Parties referred to therein (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.6 Joinder to ABL Intercreditor Agreement, dated November 6, 2020, among JPMorgan Chase Bank, N.A., as agent for the ABL Secured Parties referred to therein, and Credit Suisse AG, Cayman Islands Branch, as agent for the Term Loan Secured Parties referred to therein (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.7 First Lien Intercreditor Agreement, dated November 6, 2020, among Credit Suisse AG, Cayman Islands Branch, as First Lien Collateral Agent and Authorized Representative for the Credit Agreement Secured Parties referred to therein, The Bank of New York Mellon Trust (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.8 First Amended and Restated ABL Credit Agreement, dated July 2, 2015, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, the lending institutions from time to time party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent, the Collateral Agent, the Letter of Credit Issuer and the Swingline Lender (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 109 Exhibit Number Description of Exhibit 10.9 Amendment No. 1 to First Amended and Restated ABL Credit Agreement, dated as of May 22, 2018, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, each of the Guarantors party thereto, each of the lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent, the Collateral Agent, the Letter of Credit Issuer and the Swingline Lender (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.10 Amendment No. 2 to First Amended and Restated ABL Credit Agreement, dated as of November 6, 2020, among Academy, Ltd., as Borrower, New Academy Holding Company, LLC, as Holdings, Associated Investors, L.L.C. and Academy Managing Co., L.L.C., as Texas Intermediate Holdcos, the several lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as the letter of credit issuer, administrative agent and collateral agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on November 6, 2020). 10.11 Amended and Restated ABL Security Agreement, dated as of July 2, 2015, among Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto, and JPMorgan Chase Bank, N.A., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.12 Amended and Restated ABL Pledge Agreement, dated July 2, 2015, among New Academy Holding Company, LLC, as Holdings, Associated Investors L.L.C. and Academy Managing Co., L.L.C, as Texas Intermediate Holdcos, Academy, Ltd., as Borrower, each of the subsidiaries listed on the signature pages thereto and JPMorgan Chase Bank, N.A., as collateral agent for the benefit of the secured parties (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.13 Notes Security Agreement, dated as of November 6, 2020, among Academy, Ltd., as Issuer, each of the guarantors listed on the signature pages thereto, and The Bank of New York Mellon Trust Company, N.A., as collateral agent for the benefit of the Secured Parties referred to therein (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.14 Notes Pledge Agreement, dated as of November 6, 2020, among Academy, Ltd., as Issuer, each of the guarantors listed on the signature pages thereto, and The Bank of New York Mellon Trust Company, N.A., as collateral agent for the benefit of the Secured Parties referred to therein (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on January 25, 2021). 10.15† 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on December 10, 2020). 10.16† Form of Time-Based Option Agreement under 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.17† Form of Non-Employee Director Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.18† 2020 Form of Performance-Based Restricted Stock Unit Agreement under 2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.19†* 2021 Form of Performance-Based Restricted Stock Unit Agreement under the 2020 Omnibus Incentive Plan. 10.20† 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.21† Form of 2020 CEO Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.22† Form of 2020 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.23† Form of 2019 CEO Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.24† Form of 2019 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 110 Exhibit Number Description of Exhibit 10.25† Form of 2018 CEO Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.26† Form of 2018 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.27 † * Form of 2018 Non Executive Option Agreement under 2011 Unit Incentive Plan. 10.28† Form of 2017 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.2 9 † Form of 2016 Executive Option Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.30† Form of August 2020 Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.31† Form of 2020 CEO Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.32† Form of 2020 Executive Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.24 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.33† Form of 2019 Executive Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.25 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.34† Form of 2018 CEO Restricted Unit Agreement under 2011 Unit Incentive Plan (as amended) (incorporated by reference to Exhibit 10.26 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.35† Form of Independent Non-Employee Director Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.27 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.3 6 † Form of 2018 Executive Restricted Unit Agreement under 2011 Unit Incentive Plan (incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.3 7 † Ken C. Hicks Employment Agreement, dated August 2, 2018 (incorporated by reference to Exhibit 10.29 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.3 8 † Michael P. Mullican Employment Agreement, dated January 6, 2017 and amended on December 21, 2017 (incorporated by reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.3 9 † Steven (Steve) P. Lawrence Employment Agreement, dated January 29, 2019 (incorporated by reference to Exhibit 10.31 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10. 40 † Samuel (Sam) J. Johnson Employment Agreement, dated April 17, 2017 (incorporated by reference to Exhibit 10.32 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.4 1 †* Jamey Rutherford Traywick Employment Agreement, dated October 1, 2018. 10.4 2 † Form of 2020 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.34 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 10.4 3 Stockholders Agreement, dated as of October 6, 2020, by and among the Registrant, Allstar LLC, KKR 2006 Allstar Blocker L.P. and Allstar Co-Invest Blocker L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 6, 2020). 10.4 4 † Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.37 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed on September 23, 2020). 21.1* Subsidiaries of the Registrant. 111 Exhibit Number Description of Exhibit 23.1* Consent of Deloitte & Touche LLP (with respect to the financial statements of Academy Sports and Outdoors, Inc.). 31.1* Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document 101.LAB XBRL Taxonomy Label Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document * Filed herewith ** This certification accompanies each report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. † Compensatory arrangements for director(s) and/or executive officer(s). The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time. 112 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on April 7, 2021 on its behalf by the undersigned, thereto duly authorized. ACADEMY SPORTS AND OUTDOORS, INC. By: /s/ HEATHER A. DAVIS Heather A. Davis Senior Vice President of Accounting, Treasury and Tax (principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ KEN C. HICKS Chairman, President and Chief Executive Officer April 7, 2021 Ken C. Hicks (principal executive officer) /s/ MICHAEL P. MULLICAN Executive Vice President and Chief Financial Officer April 7, 2021 Michael P. Mullican (principal financial officer) /s/ HEATHER A. DAVIS Senior Vice President of Accounting, Treasury and Tax April 7, 2021 Heather A. Davis (principal accounting officer) /s/ BRIAN T. MARLEY Director April 7, 2021 Brian T. Marley /s/ VISHAL V. PATEL Director April 7, 2021 Vishal V. Patel /s/ ALLEN I. QUESTROM Director April 7, 2021 Allen I. Questrom /s/ WILLIAM S. SIMON Director April 7, 2021 William S. Simon /s/ NATHANIEL H. TAYLOR Director April 7, 2021 Nathaniel H. Taylor /s/ JEFFERY C. TWEEDY Director April 7, 2021 Jeffery C. Tweedy /s/ AILEEN X. YAN Director April 7, 2021 Aileen X. Yan /s/ WENDY A. BECK Director April 7, 2021 Wendy A. Beck /s/ TOM M. NEALON Director April 7, 2021 Tom M. Nealon 113 ACADEMY SPORTS AND OUTDOORS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands) (amounts in thousands) Balance at beginning of period Charged to costs and expenses Deductions Balance at end of period January 30, 2021: Allowance for doubtful accounts $ 3,275 $ ( 205 ) (5) $ ( 1,898 ) (1) $ 1,172 Sales return allowance 5,500 11,300 (2) ( 11,000 ) (2) 5,800 Inventory shrink adjustments 12,891 76,990 ( 81,377 ) (3) 8,504 Self-insurance reserves 22,429 61,920 ( 62,284 ) (4) 22,065 February 1, 2020: Allowance for doubtful accounts $ 3,008 $ 499 $ ( 232 ) (1) $ 3,275 Sales return allowance 5,800 9,400 (2) ( 9,700 ) (2) 5,500 Inventory shrink adjustments 19,271 62,975 ( 69,355 ) (3) 12,891 Self-insurance reserves 22,807 61,220 ( 61,598 ) (4) 22,429 February 2, 2019: Allowance for doubtful accounts $ 2,616 $ 1,020 $ ( 628 ) (1) $ 3,008 Sales return allowance 6,500 9,400 (2) ( 10,100 ) (2) 5,800 Inventory shrink adjustments 14,683 69,047 ( 64,459 ) (3) 19,271 Self-insurance reserves 19,942 62,000 ( 59,135 ) (4) 22,807 (1) Represents write-offs to the reserve. (2) Represents the monthly increase (decrease) in the required reserve based on the Company's evaluation of anticipated merchandise returns. (3) Represents the actual inventory shrinkage experienced at the time of physical inventories. (4) Represents claim payments for self-insured claims. (5) The reduction represents net collections on previously written-off balances. 114